AGRICULTURE DECISIONS - OALJ 62 Book...1. 13 0-. 15 1) [ herei naft er the R ul es of Pract ice]. O n A pri l 21, 1999 , C om pl ai nant O n A pri l 21, 1999 , C om pl ai nant filed

AGRICULTURE

DECISIONS

Volume 62

January - June 2003

Part Two (P & S)

Page 196 - 261

UNITED STATES DEPARTMENT OF AGRICULTURE

AGRICULTURE DECISIONS

AGRICULTURE DECISIONS is an official publication by the Secretary of Agriculture consisting

of decisions and orders issued in adjudicatory administrative proceedings conducted for the

Department under various statutes and regulations. Selected court decisions concerning the

Department's regulatory programs are also included. The Department is required to publish its rules

and regulations in the Federal Register and, therefore, they are not included in

AGRICULTURE DECISIONS.

Beginning in 1989, AGRICULTURE DECISIONS is comprised of three Parts, each of which is

published every six months. Part One is organized alphabetically by statute and contains all

decisions and orders other than those pertaining to the Packers and Stockyards Act and the

Perishable Agricultural Commodities Act, which are contained in Parts Two and Three,

respectively.

The published decisions and orders may be cited by giving the volume number, page number

and year, e.g., 1 Agric. Dec. 472 (1942). It is unnecessary to cite a decision's docket number, e.g.,

AW A Docket No. 99-0022, and the use of such references generally indicates that the decision has

not been published in AGRICULTURE DECISIONS.

Consent decisions entered subsequent to December 31, 1986, are no longer published.

However, a list of consent decisions is included. Consent decisions are on file and may be inspected

upon request made to the Hearing Clerk, Office of Administrative Law Judges.

Beginning in Volume 60, each part of AGRICULTURE DECISIONS has all the parties for that

volume, including consent decisions, listed alphabetically in a supplemental List of Decisions

Reported. The alphabetical List of Decisions Reported and the subject matter Index (from the

beginning of the annual Volume) are included in a separate volume, entitled Part Four.

Volumes 59 (circa 2000) through the current volume of Agriculture Decisions are also available

online at http://www.usda.gov/da/oaljdecisions/ along with links to other related websites. Volumes

39 (circa 1980) through Volume 58 (circa 1999) have been scanned and will appear in portable

document format (pdf) on the same OALJ website. Beginning on July 1, 2003, current ALJ

Decisions will be displayed in pdf format on the OALJ website in chronological order.

Direct all inquiries regarding this publication to: Editor, Agriculture Decisions, Office of

Administrative Law Judges, U.S. Department of Agriculture, Room 1082 South Building,

W ashington, D.C. 20250-9200, Telephone: (202) 720-6645, Fax (202) 690-0790, and e-mail

address of [email protected].

http://www.usda.gov/da/oalj.htm

vii

LIST OF DECISIONS REPORTED

PACKERS AND STOCKYARDS ACT

DEPARTMENTAL DECISIONS

In re: EXCEL CORPORATION.

P. & S. Docket No. 99-0010.

Decision and Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

In re: EXCEL CORPORATION

P. & S. Docket No. 99-0010.

Stay Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

MISCELLANEOUS ORDER

In re: SUGARCREEK LIVESTOCK AUCTION, INC.,

AND LEROY H. BAKER, JR.

P&S Docket No. D -02 - 0001.

Supplemental Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

DEFAULT DECISIONS

In re: FRED HOLMES, d/b/a HOLMES LIVESTOCK.

P&S Docket No. D - 02 - 0022.

Decision and Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254

Consent Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

196


DEPARTMENTAL DECISION


P. & S. Docket No. 99-0010.

Decision and Order.

Filed January 30, 2003.

P& S – Unfair or deceptive practice – Livestock purchase – Carcass merit basis – Purposes of

the Packers and Stockyards Act – Broad authority conferred by the Packers and Stockyards

Act – Notification to sellers of details of purchase contract – Notification to sellers of grading

to be used – “Grading” defined – Advisory rules – Substantive rules – Sanction – Cease and

desist order – Discovery of w itness names – Arbitration order – Vague regulation –

Credibility determinations – Cross appeal – Second appeal petition.

The Judicial Officer (JO) affirmed the decision of Chief Administrative Law Judge (ALJ) James

W . Hunt: (1) concluding Respondent failed to make known to hog producers the change in the

formula to estimate lean percent prior to purchase of hogs on a carcass merit basis from those

producers in violation of 7 U.S.C. § 192(a) and 9 C.F.R. § 201.99(a); and (2) ordering Respondent

to cease and desist from failing to comply with 7 C.F.R. § 201.99(a). The JO rejected Respondent’s

contention that the Packers and Stockyards Act must be narrowly construed stating the Packers and

Stockyards Act is remedial legislation that should be liberally construed to effectuate its purposes.

The JO stated two of the primary purposes of the Packers and Stockyards Act are to prevent

economic harm to livestock producers and to maintain open and free competition. Respondent

impeded competition by failing to make known to producers the change in the formula it used to

estimate lean percent of hogs, a factor that affected the amount Respondent paid for hogs. The JO

also rejected Respondent’s contention that 7 C.F.R. § 201.99 was an advisory regulation that did

not have the force and effect of law. Further, the JO rejected Respondent’s contention that 7 C.F.R.

§ 201.99(a) was vague, stating the regulation put Respondent on notice that it is required to make

known to hog producers a change in the formula to estimate lean percent. The JO stated the formula

to estimate lean percent is part of the grading process and the regulation explicitly requires packers

to notify producers of “the grading to be used.” The JO agreed with Complainant’s contention that,

under the Rules of Practice (7 C.F.R. § 1.140(a)(1)(iv)), Complainant was not required to provide

Respondent the names of anticipated witnesses. The JO found the Chief ALJ’s cease and desist

order did not bear a reasonable relation to the unlawful practice the Chief ALJ found to exist and

the Chief ALJ’s order that Respondent agree to submit the matter to arbitration with hog producers

was not a sanction authorized by the Packers and Stockyards Act. However, the JO rejected

Complainant’s contention that the Chief ALJ’s failure to assess a severe civil penalty was error.

The JO rejected Respondent’s request that he reverse the Chief ALJ’s credibility determination with

respect to one of the witnesses, stating the JO gives great weight to the credibility determinations

of administrative law judges and there was no basis to reverse the Chief ALJ’s credibility

determination. Finally, the JO refused to consider the new issues raised in Respondent’s response

to Complainant’s appeal petition stating, under the Rules of Practice (7 C.F.R. § 1.145(b)), a party

who has previously filed an appeal petition must limit the response to supporting or opposing the

other party’s appeal petition.

Patrice H. Harps and Eric Paul, for Complainant.

John R. Fleder and Brett T. Schwemer, and Jeff P. DeGraffenreid, for Respondent.

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62 Agric. Dec. 196

197

On M arch 29, 2001, Complainant moved to revise the Amended Complaint to conform to the1

evidence (Tr. 2260). Chief Administrative Law Judge James W . Hunt [hereinafter the Chief ALJ]

granted Complainant’s motion in part allowing Complainant to revise the period during which

Respondent’s violations of the Packers and Stockyards Act and the Regulations allegedly occurred

and Complainant’s alleged estimated harm to hog producers caused by Respondent’s change in the

formula used to estimate lean percent in hogs (Tr. 2260-87). The revised Amended Complaint

alleges Respondent violated section 202(a) of the Packers and Stockyards Act (7 U.S.C. § 192(a))

and section 201.99 of the Regulations (9 C.F.R. § 201.99) during the period between October 23,

1997, and July 20, 1998, and alleges additional economic harm incurred by hog producers as a

result of Respondent’s change of the formula used to estimate lean percent in hogs. On M ay 7,

(continued...)

Initial decision issued by James W . Hunt, Chief Administrative Law Judge.

Decision and Order issued by William G. Jenson, Judicial Officer.

PROCEDURAL HISTORY

Harold W. Davis, Deputy Administrator, Packers and Stockyards Programs,

Grain Inspection, Packers and Stockyards Administration, United States

Department of Agriculture [hereinafter Complainant], instituted this disciplinary

administrative proceeding by filing a “Complaint and Notice of Hearing” on

April 9, 1999. Complainant instituted this proceeding under the Packers and

Stockyards Act, 1921, as amended and supplemented (7 U.S.C. §§ 181-229)

[hereinafter the Packers and Stockyards Act]; the regulations issued under the

Packers and Stockyards Act [hereinafter the Regulations] (9 C.F.R. §§

201.1-.200); and the Rules of Practice Governing Formal Adjudicatory

Proceedings Instituted by the Secretary Under Various Statutes (7 C.F.R. §§

1.130-.151) [hereinafter the Rules of Practice]. On April 21, 1999, Complainant

filed an “Amended Complaint and Notice of Hearing” [hereinafter Amended

Complaint].

Complainant alleges that, during the period between October 23, 1997, and

June 1, 1998, Excel Corporation [hereinafter Respondent] violated section

202(a) of the Packers and Stockyards Act (7 U.S.C. § 192(a)) and section

201.99 of the Regulations (9 C.F.R. § 201.99) by failing to make known to hog

producers a change in the formula used to estimate lean percent in hogs, prior

to Respondent’s purchasing hogs on a carcass grade, carcass weight, or carcass

grade and weight basis. Complainant alleges that, as a result of the change in

the formula to estimate lean percent in hogs, Respondent paid hog producers

approximately $1,839,000 less for approximately 19,942 lots of hogs than

Respondent would have paid if Respondent had not changed the formula.

(Amended Compl. ¶¶ II-III.) On May 18, 1999, Respondent filed an “Answer”

denying the material allegations of the Amended Complaint.1

198 PACKERS AND STOCKYARDS ACT

(...continued)1

2001, Respondent filed “Excel Corporation’s Answer to Revised Amended Complaint” which

denies the material allegations of Complainant’s revised Amended Complaint.

The Chief ALJ presided over a hearing on July 18-21 and July 25-28, 2000,

in Wichita, Kansas; September 25-27, 2000, in Chicago, Illinois; and March 27-

29, 2001, in Wichita, Kansas. Patrice H. Harps and Eric Paul, Office of the

General Counsel, United States Department of Agriculture, represented

Complainant. John R. Fleder, Brett T. Schwemer, and Jeff P. DeGraffenreid

represented Respondent.

On July 16, 2001, Complainant filed “Complainant’s Proposed Findings of

Fact, Conclusions of Law, and Proposed Order” [hereinafter Complainant’s

Post-Hearing Brief] and Respondent filed “Excel Corporation’s Post-Hearing

Opening Brief” [hereinafter Respondent’s Post-Hearing Brief]. On

September 4, 2001, Complainant filed “Complainant’s Brief in Reply to

Respondent’s Post-Hearing Opening Brief” [hereinafter Complainant’s

Post-Hearing Reply Brief] and Respondent filed “Excel Corporation’s

Post-Hearing Reply Brief” [hereinafter Respondent’s Post-Hearing Reply

Brief].

On February 7, 2002, the Chief ALJ issued a “Decision and Order”

[hereinafter Initial Decision and Order]: (1) finding Respondent failed to notify

hog producers of an October 1997 change in the formula Respondent used to

estimate lean percent in hogs prior to changing the formula; (2) concluding

Respondent violated section 202(a) of the Packers and Stockyards Act (7 U.S.C.

§ 192(a)) and section 201.99(a) of the Regulations (9 C.F.R. § 201.99(a)) when

Respondent failed to notify hog producers of the change in the formula used to

estimate lean percent in hogs; (3) ordered Respondent to cease and desist from

failing to notify livestock sellers of any change in the formula used to estimate

lean percent; and (4) ordered Respondent to submit to arbitration with hog

producers who sold hogs to Respondent between October 1997 and July 1998

under Respondent’s changed formula to estimate lean percent, who may have

received less money for their hogs than the hog producers would have received

under the old formula, and who have not otherwise been compensated or

resolved the matter by agreement with Respondent (Initial Decision and Order

at 26-27).

On March 13, 2002, Complainant filed “Complainant’s Appeal of Certain

Procedural Rulings Issued by Chief Administrative Law Judge Hunt”

[hereinafter Complainant’s Appeal of Procedural Rulings], “Complainant’s

Petition of Appeal” [hereinafter Complainant’s Appeal Petition], and

“Complainant’s Brief in Support of Its Petition of Appeal” [hereinafter

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62 Agric. Dec. 196

199

Complainant’s Appeal Brief]. On March 13, 2002, Respondent filed “Excel

Corporation’s Appeal Petition and Brief” [hereinafter Respondent’s Appeal

Petition]. On June 6, 2002, Complainant filed “Complainant’s Response to

Excel Corporation’s Appeal Petition and Brief” [hereinafter Complainant’s

Response]. On June 6, 2002, Respondent filed “Excel Corporation’s Response

to Complainant’s Appeal Petition” [hereinafter Respondent’s Response to

Complainant’s Appeal]. On June 28, 2002, the Hearing Clerk transmitted the

record to the Judicial Officer for consideration and decision.

Based upon a careful consideration of the record, I disagree with the Chief

ALJ’s finding that Respondent violated a new duty established in this

proceeding and the Chief ALJ’s order that Respondent submit to arbitration.

However, I agree with many of the Chief ALJ’s findings of fact, the Chief

ALJ’s conclusion that Respondent violated section 202(a) of the Packers and

Stockyards Act (7 U.S.C. § 192(a)) and section 201.99(a) of the Regulations

(9 C.F.R. § 201.99(a)), and the Chief ALJ’s imposition of a cease and desist

order. Therefore, except for significant modifications to the Chief ALJ’s

discussion and other minor modifications, pursuant to section 1.145(i) of the

Rules of Practice (7 C.F.R. § 1.145(i)), I adopt the Chief ALJ’s Initial Decision

and Order as the final Decision and Order. Additional conclusions by the

Judicial Officer follow the Chief ALJ’s discussion of sanction, as restated.

Complainant’s exhibits are designated by “CX.” Respondent’s exhibits are

designated by “RX.” Transcript references are designated by “Tr.”

APPLICABLE STATUTORY AND REGULATORY PROVISIONS

7 U.S.C.:

TITLE 7—AGRICULTURE

. . . .

CHAPTER 9—PACKERS AND STOCKYARDS

. . . .

SUBCHAPTER II—PACKERS GENERALLY

PART A—GENERAL PROVISIONS

§ 191. “Packer” defined

When used in this chapter the term “packer” means any person

engaged in the business (a) of buying livestock in commerce for

purposes of slaughter, or (b) of manufacturing or preparing meats or


meat food products for sale or shipment in commerce, or (c) of

marketing meats, meat food products, or livestock products in an

unmanufactured form acting as a wholesale broker, dealer, or distributor

in commerce.

§ 192. Unlawful practices enumerated

It shall be unlawful for any packer with respect to livestock, meats,

meat food products, or livestock products in unmanufactured form, or

for any live poultry dealer with respect to live poultry, to:

(a) Engage in or use any unfair, unjustly discriminatory, or deceptive

practice or device[.]

. . . .

§ 193. Procedure before Secretary for violations

(a) Complaint; hearing; intervention

Whenever the Secretary has reason to believe that any packer has

violated or is violating any provision of this subchapter, he shall cause

a complaint in writing to be served upon the packer, stating his charges

in that respect, and requiring the packer to attend and testify at a hearing

at a time and place designated therein, at least thirty days after the

service of such complaint; and at such time and place there shall be

afforded the packer a reasonable opportunity to be informed as to the

evidence introduced against him (including the right of cross-

examination), and to be heard in person or by counsel and through

witnesses, under such regulations as the Secretary may prescribe. . . .

(b) Report and order; penalty

If, after such hearing, the Secretary finds that the packer has violated

or is violating any provisions of this subchapter covered by the charges,

he shall make a report in writing in which he shall state his findings as

to the facts, and shall issue and cause to be served on the packer an order

requiring such packer to cease and desist from continuing such violation.

The testimony taken at the hearing shall be reduced to writing and filed

in the records of the Department of Agriculture. The Secretary may also

assess a civil penalty of not more than $10,000 for each such violation.

In determining the amount of the civil penalty to be assessed under this

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62 Agric. Dec. 196

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section, the Secretary shall consider the gravity of the offense, the size

of the business involved, and the effect of the penalty on the person’s

ability to continue in business. If, after the lapse of the period allowed

for appeal or after the affirmance of such penalty, the person against

whom the civil penalty is assessed fails to pay such penalty, the

Secretary may refer the matter to the Attorney General who may recover

such penalty by an action in the appropriate district court of the United

States.

. . . .

SUBCHAPTER V—GENERAL PROVISIONS

. . . .

§ 223. Responsibility of principal for act or omission of agent

When construing and enforcing the provisions of this chapter, the

act, omission, or failure of any agent, officer, or other person acting for

or employed by any packer, any live poultry dealer, stockyard owner,

market agency, or dealer, within the scope of his employment or office,

shall in every case also be deemed the act, omission, or failure of such

packer, any live poultry dealer, stockyard owner, market agency, or

dealer, as well as that of such agent, officer, or other person.

§ 228. Authority of Secretary

(a) Rules, regulations, and expenditures; appropriations

The Secretary may make such rules, regulations, and orders as may

be necessary to carry out the provisions of this chapter and may

cooperate with any department or agency of the Government, any State,

Territory, District, or possession, or department, agency, or political

subdivision thereof, or any person[.]

7 U.S.C. §§ 191, 192(a), 193(a)-(b), 223, 228(a).

28 U.S.C.:

TITLE 28—JUDICIARY AND JUDICIAL PROCEDURE

. . . .

PART VI—PARTICULAR PROCEEDINGS

. . . .

CHAPTER 163—FINES, PENALTIES AND FORFEITURES


§ 2461. Mode of recovery

. . . .

FEDERAL CIVIL PENALTIES INFLATION ADJUSTM ENT

SHORT TITLE

SECTION 1. This Act may be cited as the “Federal Civil Penalties

Inflation Adjustment Act of 1990”

FINDINGS AND PURPOSE

SEC. 2. (a) FINDINGS.–The Congress finds that–

(1) the power of Federal agencies to impose civil monetary

penalties for violations of Federal law and regulations plays an

important role in deterring violations and furthering the policy goals

embodied in such laws and regulations;

(2) the impact of many civil monetary penalties has been and is

diminished due to the effect of inflation;

(3) by reducing the impact of civil monetary penalties, inflation

has weakened the deterrent effect of such penalties; and

(4) the Federal Government does not maintain comprehensive,

detailed accounting of the efforts of Federal agencies to assess and

collect civil monetary penalties.

(b) PURPOSE–The purpose of this Act is to establish a mechanism

that shall–

(1) allow for regular adjustment for inflation of civil monetary

penalties;

(2) maintain the deterrent effect of civil monetary penalties and

promote compliance with the law; and

(3) improve the collection by the Federal Government of civil

monetary penalties.

DEFINITIONS

SEC. 3. For purposes of this Act, the term–

(1) “agency” means an Executive agency as defined under

section 105 of title 5, United States Code, and includes the United

States Postal Service;

(2) “civil monetary penalty” means any penalty, fine, or other

sanction that–

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62 Agric. Dec. 196

203

(A)(i) is for a specific monetary amount as provided by

Federal law; or

(ii) has a maximum amount provided for by Federal law; and

(B) is assessed or enforced by an agency pursuant to Federal

law; and

(C) is assessed or enforced pursuant to an administrative

proceeding or a civil action in the Federal courts; and

(3) “Consumer Price Index” means the Consumer Price Index

for all-urban consumers published by the Department of Labor.

CIVIL M ONETARY PENALTY INFLATION

ADJUSTMENT REPORTS

SEC. 4. The head of each agency shall, not later than 180 days after

the date of enactment of the Debt Collection Improvement Act of 1996

[Apr. 26, 1996], and at least once every 4 years thereafter–

(1) by regulation adjust each civil monetary penalty provided by

law within the jurisdiction of the Federal agency, except for any

penalty (including any addition to tax and additional amount) under

the Internal Revenue Code of 1986 [26 U.S.C. 1 et seq.], the Tariff

Act of 1930 [19 U.S.C. 1202 et seq.], the Occupational Safety and

Health Act of 1970 [20 U.S.C. 651 et seq.], or the Social Security

Act [42 U.S.C. 301 et seq.], by the inflation adjustment described

under section 5 of this Act [bracketed material in original]; and

(2) publish each such regulation in the Federal Register.

COST-OF-LIVING ADJUSTM ENTS OF CIVIL

M ONETARY PENALTIES

SEC. 5. (a) ADJUSTM ENT.–The inflation adjustment under section 4

shall be determined by increasing the maximum civil monetary penalty

or the range of minimum and maximum civil monetary penalties, as

applicable, for each civil monetary penalty by the cost-of-living

adjustment. Any increase determined under this subsection shall be

rounded to the nearest–

(1) multiple of $10 in the case of penalties less than or equal to

$100;

(2) multiple of $100 in the case of penalties greater than $100

but less than or equal to $1,000;

(3) multiple of $1,000 in the case of penalties greater than


$1,000 but less than or equal to $10,000;


$10,000 but less than or equal to $100,000;


$100,000 but less than or equal to $200,000; and


$200,000.

(b) DEFINITION .–For purposes of subsection (a), the term

“cost-of-living adjustment” means the percentage (if any) for each civil

monetary penalty by which–

(1) the Consumer Price Index for the month of June of the

calendar year preceding the adjustment, exceeds

(2) the Consumer Price Index for the month of June of the

calendar year in which the amount of such civil monetary penalty

was last set or adjusted pursuant to law.

ANNUAL REPORT

SEC. 6. Any increase under this Act in a civil monetary penalty shall

apply only to violations which occur after the date the increase takes

effect.

LIM ITATION ON INITIAL ADJUSTM ENT.–The first adjustment of a civil

monetary penalty . . . may not exceed 10 percent of such penalty.

28 U.S.C. § 2461 note.

7 C.F.R.:

TITLE 7—AGRICULTURE

SUBTITLE A—OFFICE OF THE SECRETARY OF AGRICULTURE

. . . .

PART 3—DEBT MANAGEMENT

. . . .

Subpart E—Adjusted Civil Monetary Penalties

§ 3.91 Adjusted civil monetary penalties.

(a) In general. The Secretary will adjust the civil monetary

penalties, listed in paragraph (b), to take account of inflation at least

once every 4 years as required by the Federal Civil Penalties Inflation

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62 Agric. Dec. 196

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Adjustment Act of 1990 (Pub. L. No. 101-410), as amended by the Debt

Collection Improvement Act of 1996 (Pub. L. No. 104-134).

(b) Penalties–. . . .

. . . .

(6) Grain Inspection Service, Packers and Stockyards

Administration. (i) Civil penalty for a packer violation, codified at

7 U.S.C. 193(b), has a maximum of $11,000.

7 C.F.R. § 3.91(a), (b)(6)(i).

9 C.F.R.:

TITLE—ANIMALS AND ANIMAL PRODUCTS

. . . .

CHAPTER II—GRAIN INSPECTION, PACKERS AND

STOCKYARDS ADMINISTRATION

(PACKERS AND STOCKYARDS PROGRAMS),

DEPARTMENT OF AGRICULTURE

. . . .

PART 201—REGULATION UNDER THE PACKERS

AND STOCKYARDS ACT

. . . .

GENERAL

. . . .

§ 201.99 Purchase of livestock by packers on a carcass grade,

carcass weight, or carcass grade and weight basis.

(a) Each packer purchasing livestock on a carcass grade, carcass

weight, or carcass grade and weight basis shall, prior to such purchase,

make known to the seller, or to his duly authorized agent, the details of

the purchase contract. Such details shall include, when applicable,

expected date and place of slaughter, carcass price, condemnation terms,

description of the carcass trim, grading to be used, accounting, and any

special conditions.

. . . .

(e) Settlement and final payment for livestock purchased by a packer

on a USDA carcass grade shall be on an official (final—not preliminary)

grade. If settlement and final payment are based upon any grades other

than official USDA grades, such other grades shall be set forth in

detailed written specifications which shall be made available to the seller


or his duly authorized agent.

9 C.F.R. § 201.99(a), (e).

CHIEF ADMINISTRATIVE LAW JUDGE’S

INITIAL DECISION AND ORDER

(AS RESTATED)

Statement of the Case

Respondent, a packer, buys livestock for slaughter which Respondent then

manufactures into meat products for sale in commerce. Respondent’s corporate

address is P.O. Box 2519, Wichita, Kansas 67201. Respondent is estimated to

be the fourth or fifth largest hog slaughterer in the United States. (Answer ¶ 2;

Tr. 2329.)

Respondent acquires hogs from approximately 2,000 hog producers

(Tr. 1548). The record does not indicate the total number of hogs processed by

Respondent, but at one of its three facilities, Respondent slaughters up to 10,000

hogs a day (RX 55 at 1; Tr. 132). Respondent buys some animals on a “spot”

market basis, that is, the price is negotiated for that particular lot of hogs.

Respondent obtains other hogs through short-term and long-term contracts

whereby producers agree to sell a given number of hogs to Respondent for a set

base price. Not all contracts are in writing. (Tr. 128.)

Most hogs are sold to Respondent under its “carcass merit” program which

rewards producers who raise hogs having a high percent of lean meat. Hogs

with a high percent of lean meat have a higher market value than hogs with a

low percent of lean meat. The process by which Respondent purchases hogs

under its carcass merit program starts with a hog producer delivering hogs to

one of Respondent’s buying stations where the hogs are put into a holding pen,

tattooed for identification, given a lot number, weighed, and inspected. The

hogs are then transported to one of Respondent’s slaughtering facilities.

Respondent’s hog slaughtering facilities are located in Beardstown, Illinois,

Ottumwa, Iowa, and Marshall, Missouri. After a hog is killed, bled,

eviscerated, de-haired, washed, and inspected, the carcass is evaluated for its

estimated percentage of lean (red) meat. Respondent then applies this

percentage figure to a pricing table called the “lean percent matrix” to determine

whether the hog producer receives a discount for the carcass -- a deduction from

the base price -- or a premium -- an addition to the base price. The higher the

estimated lean percent the higher the premium.

Lean percent may be estimated by various methods. No industry standard

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62 Agric. Dec. 196

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The National Pork Producers Council is a contractor with the National Pork Board which is2

funded under a United States Department of Agriculture program through an assessment on each

hog sold. The mission of the National Pork Producers Council is to improve the profitability of hog

producers and provide consumers with a lean, wholesome, and nutritious product. The National

Pork Producers Council believes that accuracy in the evaluation and estimation of the lean percent

of carcasses leads to better pricing for hog producers. (Tr. 668, 673, 1202, 1456, 1487-88,

1513-14.)

exists for estimating lean percent. (Tr. 947.) The most accurate method (but

also the most impractical method for large slaughtering operations) is to dissect

a carcass and examine it for fat and lean meat content (Tr. 654, 671, 1500).

Other less accurate methods of estimating lean percent are Ultrasound, ToBEC,

AutoFom, and the Fat-O-Meat’er (RX 20). The method used by Respondent is

the Fat-O-Meat’er (Tr. 61).

The Fat-O-Meat’er, developed in Denmark from a study of European hogs,

has been used by Respondent for about 10 years. The Fat-O-Meat’er is a hand-

held device with a probe that is inserted in the carcass. A light measures the

difference between the loin-eye and back fat depth. A regression formula or

equation embedded in the Fat-O-Meat’er, commonly referred to as the “Danish

formula” (Lean Meat = 58.86 - 0.61 x Back Fat + 0.12 x Loineye Depth), then

uses this measurement to estimate the lean percent of the carcass. (CX 4 at 12.)

A representative for SFK Technology, the company which manufactures the

Fat-O-Meat’er, testified that the device is used worldwide and that it is a United

States Department of Agriculture approved grading system. The SFK

Technology representative said the Fat-O-Meat’er is used by 32 United States

packers, but he did not know how many rely solely on the Danish formula to

estimate lean percent. He said the Fat-O-Meat’er provides data to a packer and

the packer then determines how the information is used. Formulas vary from

packer to packer with at least three packers using the Danish formula. Some

packers use a hog’s hot carcass weight (the weight after the slaughtering process

is completed but before chilling) together with the Danish formula to estimate

lean percent. (Tr. 60, 63, 76-77, 80, 1187-88.)

Scott Eilert, research director for Respondent’s Pork Division, and Gary

Kohake, former president of Respondent’s Pork Division, testified that they

considered the Fat-O-Meat’er to be a grading system (Tr. 104-05, 948-49).

Steve Meyer, an economist with the National Pork Producers Council, testified2

that grading is a system to categorize carcasses and that an equation to estimate

lean percent is part of the grading process (Tr. 654-79). David Meisinger, an

assistant vice president with the National Pork Producers Council, opined that

grading includes all carcass evaluation systems (Tr. 1498). The United States

Department of Agriculture no longer has a grading system. Packers use their


own grading systems to evaluate carcasses which, as discussed in this Decision

and Order, infra, must be disclosed to producers.

After a producer’s lot of hogs is evaluated for lean percent, a computer

determines the payment the hog producer will receive. The check sent to the

hog producer is accompanied by a “kill sheet.” The kill sheet contains such

pertinent information as the date and number of hogs purchased, trim loss, lean

percent, and value of each hog. (CX 6 at 30; Tr. 252.) Hog producers benefit

economically by raising and selling hogs with a high lean percent, and, as one

of Respondent’s representatives testified, the kill sheet tells a hog producer how

his or her hogs “performed” (Tr. 140, 994, 1487).

Producers selling hogs to Respondent on a carcass merit basis were aware

that Respondent used the Fat-O-Meat’er to estimate lean percent and that, based

on the lean percent, the matrix determined the price the producers received

(Tr. 430, 927, 1552). Respondent provided its buyers with an explanation of the

formula that they could use to explain the formula to hog producers, and some

hog producers were told the formula. However, Respondent did not generally

inform hog producers of the details of the formula. (Tr. 314, 441, 769, 1071-72,

1084, 1208, 1481, 1522, 1604, 1648.)

Complainant was aware prior to 1997 that Respondent did not tell hog

producers the formula. Complainant’s May 12, 1993, audit report on

Respondent’s use of the Fat-O-Meat’er stated: “The formula to convert probe

millimeter readings to percentage of lean is not relayed to producers.” (RX 55

at 2; Tr. 441, 445-46, 1604-05.) The record further indicates that other packers

in the industry that used the Fat-O-Meat’er also did not tell producers about

their formulas to estimate lean percent (Tr. 672, 1214, 1345, 1371-72, 1647-48,

2455). One packer developed a brochure explaining its formula but the record

does not establish that the brochure had been prepared prior to the year 2000 or

distributed to producers (Tr. 985-86).

In 1997, Respondent began an effort to improve the accuracy of the

Fat-O-Meat’ers’ Danish formula to estimate lean percent. Respondent

estimated the Fat-O-Meat’ers’ Danish formula was only about 72-73 percent

accurate. (Tr. 909-10, 1633.) After studying various methods, Respondent

adopted a formula developed by Purdue University and promoted by the

National Pork Producers Council [hereinafter the Purdue formula]. The Purdue

formula uses hot carcass weight as a variable with the Danish formula to

estimate lean percent (2.827 + (.469*Hot Carcass Weight) - (18.47*Backfat

Depth*.0393701) + (9.824*Loineye Depth*.0393701)/Hot Carcass Weight)

(CX 6 at 13). The Purdue formula was estimated to improve the accuracy of the

measurement of lean percent to about 90 percent (Tr. 910, 1771).

Respondent, knowing the formula change could affect the price it paid for

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hogs, considered the economic effect on hog producers of the use of the Purdue

formula (Tr. 114-15). Respondent concluded, based on a study of 1.5 million

hogs, that there would be only a “minimal impact” on hog producers

(Tr. 910-12, 969, 1644-45, 1843). Dr. Eilert testified that, overall, “[s]ome hogs

would receive a higher lean percent as measured by our new equation, and some

hogs would receive a lower lean percent as measured by the new equation, and

some would not change” (Tr. 966).

Respondent decided not to tell hog producers about the change in the

formula because, while it was not a secret, company officials believed that the

formula, like the processing methods and technology it used, was not a factor

that interested hog producers or formed a basis for whether they sold hogs to

Respondent (Tr. 1645-46, 1649, 1724-25). One of Respondent’s procurement

managers equated the formula change with using a more accurate scale

(Tr. 1547-48). Another consideration was the corporate belief that hog

producers who received more because of a change to a more accurate formula

would be unhappy because they had been selling in the past under an inaccurate

formula, while hog producers who received less because of the change would

be upset (RX 47 at 2; Tr. 1689-93). Donald Brandt, formerly an assistant

procurement manager at Respondent’s Ottumwa, Iowa, slaughtering facility,

testified that sometime in the fall of 1997 he overheard a telephone conversation

between Gary Baack, the procurement manager at Respondent’s Ottumwa,

Iowa, slaughtering facility, Ted Fritz, the Beardstown, Illinois, procurement

manager, and Richard Gallant, Respondent’s vice president for procurement.

Donald Brandt testified that, after the call, Baack told Brandt that hog producers

were not to be told about the formula change. (Tr. 145-46.) Baack, however,

testified that he was never told by Gallant not to tell hog producers about the

formula change (Tr. 1044). Fritz testified Gallant had told him that there was

no need to tell hog producers about the formula change but that he was never

told to refrain from telling hog producers about the formula change (Tr. 1521).

Gallant said he had called all his procurement managers in the fall of 1997

about the formula change, except for Baack, who was on vacation at the time

(Tr. 1852).

Before implementing the formula change, Respondent examined its written

contracts with hog producers to determine if any of the contracts required

Respondent to provide notice of the formula change. Respondent concluded

that none of the contracts that it reviewed required Respondent to notify hog

producers of the formula change (Tr. 1396-98, 1848-50). However,

Respondent’s contract with Tyson Foods, which supplied the majority of the

hogs for Respondent’s Marshall, Missouri, slaughtering facility, provided that,

while Respondent had the right to change its method of carcass evaluation,


Respondent had to conduct statistically sound tests to verify that Tyson Foods

did not suffer any adverse economic effects from the change. Further, the

contract provided that, if Tyson Foods did suffer adverse economic effects,

Tyson Foods could terminate the contract. (CX 10 at 283-84.) Respondent

notified Tyson Foods of the formula change. When Tyson Foods objected to

the change, Respondent did not use the Purdue formula to estimate the lean

percent of Tyson Foods’ hogs. (Tr. 746-51.) Respondent’s contracts with some

of the other hog producers, including Heartland Pork Enterprises, Inc., and Hog,

Inc., contained a provision that was similar to the provision in Respondent’s

contract with Tyson Foods, except that these hog producers, while having the

right to have the matter submitted to arbitration, did not have the option to

terminate the contract. (CX 11 at 7, CX 12 at 11.) Respondent did not notify

these hog producers or the others of its intention to change the formula (Tr. 314,

1075). Respondent implemented the formula change at its Ottumwa, Iowa, and

Beardstown, Illinois, slaughtering facilities in October 1997 and at the Marshall,

Missouri, slaughtering facility in April 1998 (Tr. 126).

About 50 percent of the producers supplying hogs to Respondent always

sold to Respondent (Tr. 1588-89). Others sold trial lots to Respondent and to

other packers to determine where they could get the best price (Tr. 662,

1179-80, 1192, 1379, 1587). Hog producers who sold hogs to Respondent

were in locations which enabled them to sell hogs to a number of packers,

including Respondent (Tr. 1068, 1186, 1240-41, 1368-69). All packers appear

to base the prices they pay for hogs on base price, lean percent, and a matrix

(Tr. 1103-04, 1379-80, 1589-90). The result for a hog producer, as one

testified, was that “[u]nfortunately, it’s not straightforward and it’s not really an

apples and oranges comparison within the industry. Every packer has a slightly

different grading program. They use slightly different means of getting to the

same point for the end value. And so it’s just not a cut and dry answer, yes or

no, that one pays more than the other. It depends on the base price and the

grade premiums, and you add all those together to determine where is the best

place to market the hogs.” (Tr. 1103.) Thus, for a hog producer, “net dollars

per hog is [the] main concern.” (Tr. 1380.)

Beginning in late 1997, after the formula change was implemented, some

hog producers noticed a difference in the prices they were receiving for the hogs

they sold to Respondent. They discovered this difference in price by comparing

Respondent’s prices with those of other packers or even with the price they

received at Respondent’s Marshall, Missouri, slaughtering facility, which did

not change to the Purdue formula until April 1998. Hog producers who kept

records from information on their kill sheets for past sales also knew the price

they should receive for the quality of their hogs. (Tr. 141-43, 148, 406, 772,

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Pursuant to title II of the Federal Crop Insurance Reform and Department of Agriculture3

Reorganization Act of 1994 (7 U.S.C. §§ 6901-7014), effective October 20, 1994, the Secretary of

Agriculture: (1) abolished the Packers and Stockyards Administration; and (2) established GIPSA

which was assigned responsibility for all programs and activities formerly performed by the Packers

and Stockyards Administration (59 Fed. Reg. 66,517-19 (Dec. 27, 1994)).

1074-76, 1328, 1361-63, 1379, 1591, 1593-95.)

One hog producer estimated the change to be a deficiency of about $1.25 a

head (Tr. 1086-87). Hog producers initially thought the change might be

attributable to a seasonal fluctuation or a change in operations (Tr. 319, 1075).

Hog producers also began asking Respondent’s managers at its slaughtering

facilities about the matter (Tr. 141-43, 1075-77, 1201). The record indicates

that hog producers who asked were told about the formula change (Tr. 402,

1202). Hog producers who were told about the formula change included Hog,

Inc., a cooperative with over 100 members. Respondent faxed Hog, Inc., a copy

of the Purdue formula in February 1998 after Hog, Inc., contacted Respondent.

(CX 11 at 21; Tr. 1075-77, 1411.) Gene Fangmann, the procurement manager

at Respondent’s Marshall, Missouri, slaughtering facility, testified that he

notified all the hog buyers under his supervision by telephone of the formula

change in April 1998 after the change was implemented at that slaughtering

facility (Tr. 1619).

Also, in April 1998, the Grain Inspection, Packers and Stockyards

Administration [hereinafter GIPSA], initiated what appears to have been a

routine investigation of Respondent’s use of the Fat-O-Meat’er. The record

indicates that the Packers and Stockyards Administration had started these3

Fat-O-Meat’er investigations, or audits, of the industry in 1993 at the National

Pork Producers Council’s request. A National Pork Producers Council

representative testified that, prior to 1992, the Packers and Stockyards

Administration lacked a working knowledge of the Fat-O-Meat’er which, while

relatively new, was a device the industry was beginning to use as part of the

purchasing process. The National Pork Producers Council requested in 1992

that the Packers and Stockyards Administration develop a program to monitor

the use of the Fat-O-Meat’er and that hog producers be made aware of the way

lean percent is estimated. (Tr. 1307-13, 1496.)

In 1993, the Packers and Stockyards Administration instituted a program to

monitor the use of the Fat-O-Meter (Tr. 2459-60). The Packers and Stockyards

Administration conducted its first investigation of Respondent that year to

“review the accuracy of Excel’s Fat-o-Meat’er; proper application of the

payment formula; and the proper application of the Fat-o-Meat’er” (RX 55 at

1). As noted in this Decision and Order, supra, the Packers and Stockyards


Administration’s report of the 1993 audit states that the Fat-O-Meat’er formula

used by Respondent was not relayed to hog producers (RX 55 at 2). The

Packers and Stockyards Administration made a similar comment in its 1994

report (RX 57 at 3). Gene Fangmann, the manager at Respondent’s Ottumwa,

Iowa, facility at that time, testified that when asked by investigators in 1994 if

hog producers were told the formula and he replied that hog producers had not

been told of the formula, the investigators responded that their audit indicated

that “everything was up to snuff” and “looks fine” (Tr. 1604-05). The Packers

and Stockyards Administration and GIPSA conducted four audits between 1993

and 1997. Bryice Wilke, one of the investigators in 1994, testified that neither

the Packers and Stockyards Administration nor GIPSA found violations as a

result of these Fat-O-Meat’er investigations. (Tr. 217, 288.)

Bryice Wilke, while conducting the 1998 audit, found the prices that hog

producers should have been paid using the Danish formula were not those that

appeared on the kill sheets. Richard Gallant, Respondent’s vice president for

procurement, told Bryice Wilke that Respondent had changed the formula.

(Tr. 255-56, 403, 1856.) Bryice Wilke then learned from some hog producers

that they had not been told that the formula had been changed (Tr. 441).

Bryice Wilke stated he believed that, under the Regulations, Respondent

was required to disclose its formula for lean percent to hog producers and he

was of the same belief when he prepared the report in 1994 which noted that

Respondent had not disclosed the formula to hog producers (Tr. 439-41). He

did not tell Respondent at the time that he believed the failure to disclose the

formula was a violation of the Regulations (Tr. 441, 1604-05). Bryice Wilke

explained that, as an investigator, he is an information gatherer and prepares

reports and that his superiors have the responsibility to determine whether a

violation was committed (Tr. 446). When asked about the 1994 report, Bryice

Wilke’s superior, Jay Johnson, supervisor of the GIPSA Des Moines Regional

Office, testified that “[t]here are many times that we may find a violation and

not file a formal administrative action. I do not know if the conclusion was

made that there were no violations.” (Tr. 2456.)

In 1997, Respondent was unaware of any requirement to notify hog

producers of the formula or its change when not requested (Tr. 1653, 1861-64).

The National Pork Producers Council was also unaware of any requirement to

notify hog producers of the formula or its change when not requested

(Tr. 1481-82). Complainant argued that the Packers and Stockyards

Administration had given Respondent such notice in a 1992 letter that stated

“Regulation 201.99 issued under the provisions of the Packers and Stockyards

Act (1921, as amended) requires that a packer make known to the seller, prior

to the purchase the details of the purchase contract, and then provide a true

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written account of such purchase including all information affecting final

payment and accounting.” This letter relates to a matter of accounting for lost

or misidentified hog carcasses rather than to the Fat-O-Meat’er. (CX 17.)

As a result of the 1998 investigation, Complainant decided that

Respondent’s failure to disclose its change of the formula to hog producers prior

to the purchase of hogs from those producers, was a violation of section 201.99

of the Regulations (9 C.F.R. § 201.99). Respondent was told of the alleged

violation in June 1998 (Tr. 1857-58). In July 1998, Respondent sent a letter to

hog producers notifying them that the formula had been changed (Tr. 1400).

Respondent also adjusted the matrix so that hog producers received the same

price under the Purdue formula as they would have received had Respondent

used the Danish formula. Respondent said that it received no complaints from

hog producers and that no hog producer stopped selling hogs to Respondent

because of the formula change (Tr. 1045-46, 1586-88, 1601-03). However,

among hog producers there was a mixed reaction. Some hog producers favored

the change to a more accurate formula, some hog producers were indifferent,

and some hog producers were upset with Respondent’s failure to notify them of

the change in the formula. (Tr. 1046-47, 1084-85, 1091, 1099-1101, 1158-61,

1203-07, 1365-67.)

Respondent reached a settlement with Heartland Pork Enterprises, Inc., and

Hog, Inc., on their contract dispute relating to the formula change. Respondent

sent checks to other hog producers in amounts Respondent calculated were the

differences between what the hog producers received under the Purdue formula

and what they would have received under the Danish formula from the time of

the formula change to the date they were notified of the formula change.

Respondent did not try to recover from those hog producers who were paid

more because of the formula change. (RX 51; Tr. 1006-07.)

Complainant determined that the difference in the estimate of lean percent

between the Purdue formula and the Danish formula was about 1 percent (CX 9

at 160; Tr. 735). Complainant estimated that 87 percent of the hog producers

received less and 13 percent of the hog producers received more because of the

formula change. Complainant also estimated that Respondent paid hog

producers $1,841,585.34 less using the Purdue formula than Respondent would

have paid hog producers had it continued to use the Danish formula, or an

average of approximately $90.20 less per lot. (CX 9; Tr. 814-21.)

When Respondent responded that it had paid hog producers $3,093,581

(including interest at 5.85 percent) as the difference between the Purdue formula

and the Danish formula (RX 51), Complainant recalculated its estimate and

determined that Respondent had still underpaid hog producers by $635,345.52

and that some hog producers had not received a payment (Tr. 2051).


Complainant seeks a cease and desist order and the assessment of an

$8,000,000 civil penalty against Respondent (Complainant’s Post-Hearing Brief

at 96-98).

Discussion

The issues in this proceeding are: (1) whether Respondent had a duty under

section 202(a) of the Packers and Stockyards Act (7 U.S.C. § 192(a)) and

section 201.99 of the Regulations (9 C.F.R. § 201.99) to notify hog producers

when it changed its formula for estimating lean percent; and (2) if Respondent

had a duty to notify hog producers when it changed its formula for estimating

lean percent, what sanction is appropriate for a violation of that duty. The

salient facts are not in dispute. The parties are in agreement that Respondent

did not tell all hog producers when it changed the formula to estimate lean

percent and did not disclose details of the formula to all hog producers.

Complainant’s theory expressed in the Amended Complaint is that the

Fat-O-Meat’er’s formula to estimate lean percent is a method to calculate the

purchase price of hogs and that Respondent violated section 201.99 of the

Regulations (9 C.F.R. § 201.99) when it failed to notify hog producers of the

changed formula because “every packer must make known to sellers the details

of purchase contracts, including the calculation of price, prior to purchasing

hogs on a carcass grade, carcass weight, or carcass grade and weight (i.e.,

carcass merit) basis (9 C.F.R. § 201.99)” (Amended Compl. ¶ III). Complainant

argues that the formula, as a method to estimate lean percent, is an “essential

element” of the “grading to be used” by Respondent and that “it is extremely

important that the producer know the process and elements involved in

estimating the lean percent of each hog. The price depends on it. Without this

information the price cannot be ‘discovered’ by the producer . . . ; the producer

cannot determine or estimate the price offered by one packer in order to

compare it to the price offered by another packer.” (Complainant’s

Post-Hearing Brief at 42, 44.)

Complainant further contends Respondent had a contractual good faith duty

to tell hog producers of any changes in the formula and Respondent had the

duty under section 201.99(e) of the Regulations (9 C.F.R. § 201.99(e)) to

provide hog producers, on request, detailed written specifications about the

grades which are the bases for settlement and payment. Complainant alleges

Respondent’s action constitutes an unfair and deceptive practice in violation of

section 202(a) of the Packers and Stockyards Act (7 U.S.C. § 192(a)) and

caused hog producers to suffer substantial economic harm. (Complainant’s

Post-Hearing Brief at 44-56.)

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61 Cong. Rec. 1801 (1921) (By Mr. Haugen: “Undoubtedly it is a most far-reaching measure4

and extends further than any previous law into the regulation of private business, with the exception

of war emergency measures, and possibly the interstate commerce act.”); 61 Cong. Rec. 4783

(1921) (By M r. Haugen: “It gives the Secretary of Agriculture complete visitorial, inquisitorial,

supervisory, and regulatory power over the packers and stockyards. It extends over every

ramification of the packers and stockyard transactions in connection with the packing business. It

provides for ample court review. The bill is designed to supervise and regulate and thus safeguard

the public and all elements of the packing industry, from the producer to the consumer, without

injury or to destroy any unit in it. It is the most far-reaching measure and extends further than any

previous law into the regulation of private business— with few exceptions, the war emergency

measure and possibly the interstate commerce act.”).

Respondent denies it violated the Packers and Stockyards Act and the

Regulations. Respondent contends: (1) Complainant has not met its burden of

proving Respondent violated the Packers and Stockyards Act; (2) the Complaint

was politically motivated; (3) Complainant’s interpretation of the Packers and

Stockyards Act is not entitled to deference; (4) the Packers and Stockyards Act

must be narrowly construed; (5) section 201.99 of the Regulations (9 C.F.R. §

201.99) is not a substantive regulation and lacks the force and effect of law;

(6) section 201.99 of the Regulations (9 C.F.R. § 201.99) is vague and does not

refer to formulas to estimate lean percent or define “grading to be used”;

(7) notice to hog producers of the formula change was a contractual matter;

(8) hog producers did not care whether the formula was changed;

(9) Respondent did not have a legal duty to notify hog producers of the formula

change; (10) Respondent was not given prior warning or notice of

Complainant’s interpretation of the Packers and Stockyards Act and the

Regulations or the penalty Complainant seeks; (11) the Packers and Stockyards

Act does not authorize a penalty for a violation of the Regulations;

(12) Complainant’s proposed civil penalty is excessive and violates the Eighth

Amendment to the Constitution of the United States; and (13) Complainant’s

proposed cease and desist order is not appropriate (Respondent’s Post-Hearing

Brief).

The sponsors of the bill later enacted as the Packers and Stockyards Act

(H.R. 6230) described the bill as one of the most comprehensive regulatory

measures ever considered. Similarly, the House Report applicable to the bill4

describes the bill as giving the Secretary of Agriculture broad authority, as

follows:

A careful study of the bill, will, I am sure, convince one that it, and

existing laws, give the Secretary of Agriculture complete inquisitorial,

visitorial, supervisory, and regulatory power over the packers,


For example, in 1924, the Packers and Stockyards Act was broadened to authorize the5

Secretary of Agriculture to suspend registrants and require bonds of registrants (Act of June 5,

1924, Pub. L. No. 201, 43 Stat. 460 (codified at 7 U.S.C. § 204)). The Packers and Stockyards Act

was broadened to cover live poultry dealers or handlers in 1935 (Act of Aug. 14, 1935, Pub. L. No.

272, § 503, 49 Stat. 649 (codified at 7 U.S.C. §§ 192, 218b, 221, 223)). In 1958, the Packers and

Stockyards Act was broadened to give the Secretary of Agriculture “jurisdiction over all livestock

marketing involved in interstate commerce including country buying of livestock and auction

markets, regardless of size” (H.R. Rep. No. 85-1048, at 5 (1957), reprinted in 1958 U.S.C.C.A.N.

5212, 5216). In 1976, the Packers and Stockyards Act was broadened to authorize packer-bonding,

temporary injunctions, and civil penalties; to require prompt payment of packers, market agencies,

and dealers; and to eliminate the requirement that the Secretary of Agriculture prove that each

violation occurred “in commerce” (Act of Sept. 13, 1976, Pub. L. No. 94-410, 90 Stat. 1249).

Accord In re Arizona Livestock Auction, Inc., 55 Agric. Dec. 1121, 1130-31 (1996); In re6

Chatham Area Auction, Cooperative, Inc., 49 Agric. Dec. 1043, 1056-57 (1990); In re Ozark

(continued...)

stockyards and all activities connected therewith; that it is a most

comprehensive measure and extends farther than any previous law in the

regulation of private business, in time of peace, except possibly the

interstate commerce act.

H.R. Rep. No. 67-77, at 2 (1921).

The Conference Report applicable to H.R. 6230 states “Congress intends to

exercise, in the bill, the fullest control of packers and stockyards which the

Constitution permits[.]” H.R. Conf. Rep. No. 67-324, at 3 (1921).

Further, Congress has repeatedly broadened the Secretary of Agriculture’s

authority under the Packers and Stockyards Act. The primary purpose of the5

Packers and Stockyards Act was described in a House Report, in connection

with a major amendment of the Packers and Stockyards Act enacted in 1958, as

follows:

The Packers and Stockyards Act was enacted by Congress in 1921. The

primary purpose of this Act is to assure fair competition and fair trade

practices in livestock marketing and in the meatpacking industry. The

objective is to safeguard farmers and ranchers against receiving less than

the true market value of their livestock and to protect consumers against

unfair business practices in the marketing of meats, poultry, etc.

Protection is also provided to members of the livestock marketing and

meat industries from unfair, deceptive, unjustly discriminatory, and

monopolistic practices of competitors, large or small.[6]

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(...continued)6

County Cattle Co., 49 Agric. Dec. 336, 360 (1990); In re Victor L. Kent & Sons, Inc., 47 Agric. Dec.

692, 717 (1988); In re Gary Chastain , 47 Agric. Dec. 395, 420 (1988), aff’d per curiam , 860 F.2d

1086 (8th Cir. 1988) (unpublished), printed in 47 Agric. Dec. 1395 (1988); In re Floyd Stanley

White, 47 Agric. Dec. 229, 299 (1988), aff’d per curiam , 865 F.2d 262, 1988 W L 133292 (6th Cir.

1988); In re Sterling Colorado Beef Co., 39 Agric. Dec. 184, 233-34 (1980), appeal dismissed, No.

80-1293 (10th Cir. Aug. 11, 1980); Donald A. Campbell, The Packers and Stockyards Act

Regulatory Program, in 1 Davidson, Agricultural Law , ch. 3 (1981 and 1989 Cum. Supp.)

See, e.g., Swift & Co. v. United States, 393 F.2d 246, 253 (7th Cir. 1968) (stating the statutory7

prohibitions of section 202 of the Packers and Stockyards Act are broader and more far-reaching

than the Sherman Antitrust Act or even section 5 of the Federal Trade Commission Act); Swift &

Co. v. United States, 308 F.2d 849, 853 (7th Cir. 1962) (stating the legislative history shows

Congress understood that section 202 of the Packers and Stockyards Act is broader in scope than

antecedent legislation, such as the Sherman Antitrust Act, section 2 of the Clayton Act, section 5

of the Federal Trade Commission Act, and section 3 of the Interstate Commerce Act); Wilson & Co.

v. Benson , 286 F.2d 891, 895 (7th Cir. 1961) (stating from the legislative history it is a fair inference

that, in the opinion of Congress, section 2 of the Clayton Act, section 5 of the Federal Trade

Commission Act, and the prohibitions in the Sherman Antitrust Act were not broad enough to the

meet the public needs as to business practices of packers; section 202(a) and (b) of the Packers and

Stockyards Act was enacted for the purpose of going further than prior legislation in the prohibiting

of certain trade practices which Congress considered were not consonant with the public interest).

Farrow v. United States Dep’t of Agric., 760 F.2d 211, 214 (8th Cir. 1985); Rice v. Wilcox,8

630 F.2d 586, 589 (8th Cir. 1980); Travelers Indem. Co. v. M anley Cattle Co., 553 F.2d 943, 945

(5th Cir. 1977); Central Coast Meats v. United States Dep’t of Agric., 541 F.2d 1325, 1328 (9th Cir.

1976); Glover Livestock Comm’n Co. v. Hardin , 454 F.2d 109, 111 (8th Cir. 1972), rev’d on other

grounds, 411 U.S. 182 (1973); Bruhn’s Freezer Meats of Chicago, Inc. v. United States Dep’t of

Agric., 438 F.2d 1332, 1336 (8th Cir. 1971); Swift & Co. v. United States, 393 F.2d 247, 253 (7th

Cir. 1968); Bowman v. United States Dep’t of Agric., 363 F.2d 81, 85 (5th Cir. 1966); Lich v.

Cornhusker Casualty Co., 774 F. Supp. 1216, 1221 (D. Neb. 1991); Cook v. Hartford Accident &

Indem, Co., 657 F. Supp. 762, 767 (D. Neb. 1987) (memorandum opinion); Gerace v. Utica Veal

Co., 580 F. Supp. 1465, 1470 (N.D.N.Y. 1984) (memorandum decision); Pennsylvania Agric. Coop.

Mktg. Ass’n v. Ezra Martin Co., 495 F. Supp. 565, 570 (M.D. Pa. 1980) (memorandum opinion);

Arnold Livestock Sales Co. v. Pearson , 383 F. Supp. 1319, 1323 (D. Neb. 1974) (memorandum

opinion); Folsom-Third Street Meat Co. v. Freeman , 307 F. Supp. 222, 225 (N.D. Cal. 1969); In

re Frosty M orn Meats, Inc., 7 B.R. 988, 1013 (Bankr. M.D. Tenn. 1980); In re Arizona Livestock

(continued...)

H.R. Rep. No. 85-1048, at 1 (1957), reprinted in 1958 U.S.C.C.A.N. 5213.

Courts that have examined the Packers and Stockyards Act have uniformly

described the Packers and Stockyards Act as constituting a broader grant of

authority to regulate than previous legislation. Moreover, the Packers and7

Stockyards Act is remedial legislation and should be liberally construed to

effectuate its purposes. The purposes of the Packers and Stockyards Act are8


(...continued)8

Auction, Inc., 55 Agric. Dec. 1121, 1132 (1996); In re ITT Continental Baking Co., 44 Agric. Dec.

748, 799 (1985).

See Mahon v. Stowers, 416 U.S. 100, 106 (1974) (per curiam) (stating the chief evil at which9

the Packers and Stockyards Act is aimed is the monopoly of the packers, enabling them unduly and

arbitrarily to lower prices to the shipper who sells and unduly and arbitrarily to increase the price

to the consumer who buys); Denver Union Stock Yard Co. v. Producers Livestock Mktg. Ass’n,

356 U.S. 282, 289 (1958) (stating the Packers and Stockyards Act is aimed at all monopoly

practices, of which discrimination is one); Jackson v. Swift Eckrich, Inc., 53 F.3d 1452, 1460 (8th

Cir. 1995) (stating the Packers and Stockyards Act has its origins in antecedent antitrust legislation

and primarily prevents conduct which injures competition); Farrow v. United States Dep’t of Agric.,

760 F.2d 211, 214 (8th Cir. 1985) (stating the Packers and Stockyards Act gives the Secretary of

Agriculture broad authority to deal with any practices that inhibit the fair trading of livestock by

stockyards, marketing agencies, and dealers); Rice v. Wilcox, 630 F.2d 586, 590 (8th Cir. 1980)

(stating one purpose of the Packers and Stockyards Act is to protect the owner and shipper of

livestock and to free the owner from fear that the channels through which his product passed,

through discrimination, exploitation, overreaching, manipulation, or other unfair practices, might

not return to him a fair return for his product); Van Wyk v. Bergland , 570 F.2d 701, 704 (8th Cir.

1978) (stating one purpose of the Packers and Stockyards Act is to assure fair trade practices in the

livestock marketing industry in order to safeguard farmers and ranchers against receiving less than

the true market value of their livestock); Solomon Valley Feedlot, Inc. v. Butz, 557 F.2d 717, 718

(10th Cir. 1977) (stating one purpose of the Packers and Stockyards Act is to make sure that farmers

and ranchers receive true market value for their livestock and to protect consumers from unfair

practices in the marketing of meat products); Pacific Trading Co. v. Wilson & Co., 547 F.2d 367,

369 (7th Cir. 1976) (stating the Packers and Stockyards Act is a statute prohibiting a variety of

unfair business practices which adversely affect competition); Hays Livestock Comm’n Co. v. M aly

Livestock Comm’n Co., 498 F.2d 925, 927 (10th Cir. 1974) (stating the chief evil sought to be

prevented or corrected by the Packers and Stockyards Act is monopolistic practices in the livestock

industry); Glover Livestock Comm’n Co. v. Hardin , 454 F.2d 109, 111 (8th Cir. 1972) (stating the

purpose of the Packers and Stockyards Act is to prevent economic harm to producers and

consumers), rev’d on other grounds, 411 U.S. 182 (1973); Bruhn’s Freezer Meats of Chicago, Inc.

v. United States Dep’t of Agric., 438 F.2d 1332, 1337-38 (8th Cir. 1971) (stating the purpose of the

Packers and Stockyards Act is to assure fair trade practices in the livestock-marketing and meat-

packing industry in order to safeguard farmers and ranchers against receiving less than the true

market value of their livestock and to protect consumers against unfair business practices in the

marketing of meats and other products); Swift & Co. v. United States, 393 F.2d 247, 253 (7th Cir.

1968) (stating the purpose of the Packers and Stockyards Act is to prevent economic harm to

producers and consumers); United States Fidelity & Guaranty Co. v. Quinn Brothers of Jackson,

Inc., 384 F.2d 241, 245 (5th Cir. 1967) (stating one of the basic objectives of the Packers and

Stockyards Act is to impose upon stockyards the nature of public utilities, including the protection

for the consuming public that inheres in the nature of a public utility); Safeway Stores, Inc. v.

(continued...)

varied. Two of the primary purposes of the Packers and Stockyards Act are to

prevent economic harm to livestock producers and to maintain open and free

competition.9

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(...continued)9

Freeman , 369 F.2d 952, 956 (D.C. Cir. 1966) (stating the purpose of the Packers and Stockyards

Act is to prevent economic harm to the growers and consumers through the concentration in a few

hands of the economic function of the middle man); Bowman v. United States Dep’t of Agric.,

363 F.2d 81, 85 (5th Cir. 1966) (stating one of the purposes of the Packers and Stockyards Act is

to ensure proper handling of shipper’s funds and their proper transmission to the shipper); United

States v. Donahue Bros., Inc., 59 F.2d 1019, 1023 (8th Cir. 1932) (stating one purpose of the

Packers and Stockyards Act is to protect the owner and shipper of livestock and to free the owner

from fear that the channels through which his product passed, through discrimination, exploitation,

overreaching, manipulation, or other unfair practices, might not return to him a fair return for his

product); Philson v. Cold Creek Farms, Inc., 947 F. Supp. 197, 200 (E.D.N.C. 1996) (stating the

Packers and Stockyards Act was enacted to regulate the business of packers by forbidding them

from engaging in unfair, discriminatory, or deceptive practices in interstate commerce, subjecting

any person to unreasonable prejudice in interstate commerce, or doing any of a number of acts to

control prices or establish a monopoly in the business); Pennsylvania Agric. Coop. M ktg. Ass’n v.

Ezra M artin Co., 495 F. Supp. 565, 570 (M .D. Pa. 1980) (memorandum opinion) (stating one

purpose of the Packers and Stockyards Act is to give all possible protection to suppliers of

livestock); United States v. Hulings, 484 F. Supp. 562, 567 (D. Kan. 1980) (memorandum opinion)

(stating one purpose of the Packers and Stockyards Act is to protect farmers and ranchers from

receiving less than fair market value for their livestock and to protect consumers from unfair

practices); Guenther v. Morehead , 272 F. Supp. 721, 725-26 (S.D. Iowa 1967) (stating the thrust

of the Packers and Stockyards Act is in the direction of stemming monopolistic tendencies in

business; the unrestricted free flow of livestock is to be preserved by the elimination of certain

unjust and deceptive practices disruptive to such traffic; the Packers and Stockyards Act deals w ith

undesirable modes of business conduct by livestock concerns which are made possible by the

disproportionate bargaining position of such businesses); De Vries v. Sig Ellingson & Co.,

100 F. Supp. 781, 786 (D. Minn. 1951) (stating the Packers and Stockyards Act was passed for the

purposes of eliminating evils that had developed in marketing livestock in the public stockyards of

the nation; controlling prices to prevent monopoly; eliminating unfair, discriminatory, and deceptive

practices in the meat industry; and regulating rates for services rendered in connection with

livestock sales), aff’d, 199 F.2d 677 (8th C ir. 1952), cert. denied, 344 U.S. 934 (1953); Midwest

Farmers, Inc. v. United States, 64 F. Supp. 91, 95 (D. M inn. 1945) (stating by the Packers and

Stockyards Act, Congress sought to eliminate the unfair and monopolistic practices that existed; one

of the chief objectives of the Packers and Stockyards Act is to stop collusion of packers and market

agencies; Congress made an effort to provide a market where farmers could sell livestock and where

they could obtain actual value as determined by prices established at competitive bidding); Bowles

v. Albert Glauser, Inc., 61 F. Supp. 428, 429 (E.D. Mo. 1945) (stating government supervision of

public stockyards has for one of its purposes the maintenance of open and free competition among

buyers, aided by sellers’ representatives); In re Petersen, 51 B.R. 486, 488 (Bankr. D. Kan. 1985)

(memorandum opinion) (stating one purpose of the Packers and Stockyards Act is to ensure proper

handling of shippers’ funds and their proper transmission to shippers); In re Farmers & Ranchers

Livestock Auction, Inc., 46 B.R. 781, 793 (Bankr. E.D. Ark. 1984) (memorandum opinion) (stating

one of the primary purposes of the Packers and Stockyards Act and its regulations is to protect the

welfare of the public by assuring that the sellers and buyers who are customers of the market

agencies and dealers are not victims of unfair trade practices); In re Ozark County Cattle Co.,

49 Agric. Dec. 336, 360 (1990) (stating the primary objective of the Packers and Stockyards Act

(continued...)


(...continued)9

is to safeguard farmers and ranchers against receiving less than the true value of their livestock);

In re Victor L. Kent & Sons, Inc., 47 Agric. Dec. 692, 717 (1988) (stating the primary purpose of

the Packers and Stockyards Act is to assure not only fair competition, but also, fair trade practices

in livestock marketing and meat packing); Harold M . Carter, The Packers and Stockyards Act, 10

Harl, Agricultural Law § 71.05 (1983) (stating among the more important purposes of the Packers

and Stockyards Act are to prohibit particular circumstances which might result in a monopoly and

to induce healthy competition; prevent potential injury by stopping unlawful practices in their

incipiency; prevent economic harm to livestock and poultry producers and consumers and to protect

them against certain deleterious practices of middlemen; assure fair trade practices in order to

safeguard livestock producers against receiving less than the true value of livestock as well as to

protect consumers against unfair meat marketing practices; insure proper handling of funds due

sellers for the sale of their livestock; assure reasonable rates and charges by stockyard owners and

market agencies in connection with the sale of livestock; and assure free and unburdened flow of

livestock through the marketing system unencumbered by monopoly or other unfair, unjustly

discriminatory, or deceptive practices).

7 U.S.C. § 228(a).10

The Secretary of Agriculture has authority under the Packers and Stockyards

Act to issue regulations to implement the Packers and Stockyards Act. In10

1967, the Packers and Stockyards Administration published in the Federal

Register a notice of proposed rulemaking relating to the purchase of livestock

by packers on a carcass grade, carcass weight, or carcass grade and weight basis

(32 Fed. Reg. 7858 (May 30, 1967)). After receiving and considering

comments from interested parties, the Packers and Stockyards Administration

adopted the proposed rule as section 201.99 of the Regulations (9 C.F.R. §

201.99) (33 Fed. Reg. 2760 (Feb. 9, 1968)).

Section 201.99(a) of the Regulations (9 C.F.R. § 201.99(a)) provides that

prior to purchasing livestock a packer shall make known to the seller “details

of the purchase contract” such as “carcass price” and the “grading to be used.”

Section 201.99(e) of the Regulations (9 C.F.R. § 201.99(e)) provides the added

requirement that if payment is based on any grade other than official United

States Department of Agriculture grades, the packer shall make available to the

seller detailed written specifications of such grades.

The Packers and Stockyards Administration provided answers to questions

by industry members on the new regulations. On the matter of the details about

grading a packer was to provide to producers (sellers), it said:

Q. Does the buyer have to furnish the seller on each transaction a

set of written specifications for his house grades if they agree to use

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In re Finger Lakes Livestock Exchange, Inc., 48 Agric. Dec. 390, 400 n.3 (1989).11

In re Wilkes County Stock Yard, Inc., 48 Agric. Dec. 1015, 1039-40 (1989).12

house grades?

A. A set of detailed written standards must be established for each

house grade used in this type of marketing. These must be kept on file

by the packer and made available to the seller or his duly authorized

agent for review upon request. It is not necessary to furnish a copy of

these standards to each seller or his duly authorized agent, but they must

be available for their inspection.

RX 50 at 71.

The Packers and Stockyards Administration also announced that section

201.99 of the Regulations (9 C.F.R. § 201.99) “sets forth the official position

of the Packers and Stockyards Administration that to engage in the practices

prohibited by the regulation is a violation of the statute.” (RX 50 at 35.)

However, at the time section 201.99 of the Regulations (9 C.F.R. § 201.99)

took effect in 1968, regulations promulgated under the Packers and Stockyards

Act were advisory only. Then, in 1974, the Packers and Stockyards11

Administration stated that it could issue substantive regulations (i.e., regulations

having the force and effect of law) as well as advisory regulations and that

whether a particular regulation was advisory or substantive was to be

determined on a case-by-case basis. In 1984, the Packers and Stockyards12

Administration reviewed section 201.99 of the Regulations (9 C.F.R. § 201.99),

and stated that, except for a proviso in section 201.99(d) of the Regulations

(9 C.F.R. § 201.99(d)) (not relevant to this proceeding), it was retaining section

201.99 of the Regulations (9 C.F.R. § 201.99) because the reasons in 1968 for

adopting the section “remain equally valid today.” (49 Fed. Reg. 37,371 (Sept.

24, 1984).)

Complainant contends section 201.99 of the Regulations (9 C.F.R. § 201.99)

is a substantive rule that the Packers and Stockyards Administration and GIPSA

have enforced many times. Complainant states that, since 1986, the Packers and

Stockyards Administration and GIPSA have filed 30 complaints alleging

violations of section 201.99 of the Regulations (9 C.F.R. § 201.99), with most

dealing with false weighing. (Complainant’s Post-Hearing Brief at 56-61.)

Respondent contends that because section 201.99 of the Regulations (9 C.F.R.

§ 201.99) was adopted in 1968, when such regulations were considered


advisory, the regulation continues to be advisory and therefore non-binding

(Respondent’s Post-Hearing Brief at 47).

Although promulgated in 1968, section 201.99 of the Regulations (9 C.F.R.

§ 201.99) was adopted after notice of proposed rulemaking was published in the

Federal Register as required by the Administrative Procedure Act. Section

201.99 of the Regulations (9 C.F.R. § 201.99) “legislates” a new standard of

conduct for packers relating to disclosure of information rather than merely

explaining the meaning of the Packers and Stockyards Act. Non-compliance

with section 201.99 of the Regulations (9 C.F.R. § 201.99) is a violation of the

Packers and Stockyards Act, and the Packers and Stockyards Administration

considered and specifically retained the regulation in 1984. In these

circumstances, I find section 201.99 of the Regulations (9 C.F.R. § 201.99) is

a substantive rule having the force and effect of law.

Respondent argues the Packers and Stockyards Act was not designed to

upset the traditional principles of freedom of contract and contends notice of the

formula change was a contractual rather than a legal matter between Respondent

and hog producers who sold hogs to Respondent (Respondent’s Post-Hearing

Brief at 22-23).

Congress intended the Packers and Stockyards Act to provide the Secretary

of Agriculture with broad authority to regulate private business, as follows:

[The Packers and Stockyards Act] gives the Secretary complete

inquisitorial, visitorial, supervisory, and regulatory power over the

packers, stockyards, and all activities connected therewith.

. . . .

Undoubtedly, [the Packers and Stockyards Act] is a most

far-reaching measure and extends further than any previous law into the

regulation of private business, with the exception of war emergency

measures, and possibly the interstate commerce act.

61 Cong. Rec. 1801 (1921).

I find nothing in the Packers and Stockyards Act, the legislative history

connected with the Packers and Stockyards Act, or the cases cited by

Respondent to indicate that traditional principles of freedom of contract limit

the Secretary of Agriculture’s broad authority to regulate packers under the

Packers and Stockyards Act. Thus, packers have the freedom to contract

provided the terms of their contracts do not violate the Packers and Stockyards

Act or the Regulations. Packers cannot avoid statutory or regulatory obligations

by contract. Section 201.99(a) of the Regulations (9 C.F.R. § 201.99(a))

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In re American Fruit Purveyors, Inc., 38 Agric. Dec. 1372, 1385 (1979), aff’d per curiam ,13

630 F.2d 370 (5th Cir. 1980), cert. denied, 450 U.S. 997 (1981).

requires each packer purchasing livestock on a carcass merit basis, prior to the

purchase, to make known to the seller the details of the purchase contract,

including the grading to be used. The formula Respondent uses to estimate lean

percent is a part of “grading” within the meaning of section 201.99 of the

Regulations (9 C.F.R. § 201.99) as it is an element of Respondent’s carcass

evaluation process. Respondent’s legal obligation under section 201.99(a) of

the Regulations (9 C.F.R. § 201.99(a)) and section 202(a) of the Packers and

Stockyards Act (7 U.S.C. § 192(a)) is not affected by Respondent’s contracts

with hog producers.

Respondent also argues that institution of the Complaint was politically

motivated (Respondent’s Post-Hearing Brief at 18-19; Respondent’s

Post-Hearing Reply Brief at 61-62). Complainant has discretion, regardless of

motive, to be selective in the enforcement of the Packers and Stockyards Act.

Complainant’s motives are immaterial as long as Complainant’s action is not

arbitrary. I do not find that institution of this proceeding was arbitrary.13

Rather, I find Complainant’s stated concern for the impact on hog producers of

technological changes that affect the prices hog producers receive consistent

with Complainant’s congressionally mandated mission to prevent economic

harm to producers and to maintain open and free competition.

Respondent further argues section 201.99 of the Regulations (9 C.F.R. §

201.99) is too vague to be enforceable. Respondent contends section 201.99 of

the Regulations (9 C.F.R. § 201.99) does not define formula, grading, or

calculation of price, and Respondent was entitled to notice from Complainant

that Respondent had a duty to tell hog producers that it was changing the

formula Respondent used to estimate lean percent. (Respondent’s Post-Hearing

Brief at 38-44.)

Section 201.99 of the Regulations (9 C.F.R. § 201.99) is not vague or

ambiguous. The record is clear that all parties considered the Fat-O-Meat’er

to be a form of grading. The formula Respondent used to estimate lean percent

was also a part of the “grading” within the meaning of section 201.99 of the

Regulations (9 C.F.R. § 201.99) as it was an element of Respondent’s carcass

evaluation process. Section 201.99 of the Regulations (9 C.F.R. § 201.99)

explicitly provides that packers purchasing livestock on a carcass merit basis

must make known to the seller the grading to be used prior to the purchase.

Sanction


Complainant seeks an $8,000,000 civil penalty. Complainant contends this

civil penalty is necessary because of the great economic harm done to hog

producers when Respondent “unilaterally” changed the formula for estimating

lean percent (Tr. 2323). Complainant contends the measure of economic harm

is the difference between the amount hog producers were paid when Respondent

used the Purdue formula and the amount hog producers would have been paid

had Respondent continued to use the Danish formula. However, Complainant’s

method of measuring economic harm to hog producers is not necessarily the

most accurate method of measuring the harm caused by Respondent’s failure to

notify hog producers of the change in the formula.

Respondent has the right (unless a contract provides otherwise) to

“unilaterally” change the formula to estimate lean percent as long as

Respondent notifies hog producers of the formula change prior to purchasing

hogs on a carcass merit basis from those producers. Since Respondent, or any

other packer, has the right, after notice, to alter the price it pays by changing its

formula for estimating lean percent, hog producers would not be legally harmed

by the change.

Hog producers can compare prices and choose to continue to sell to

Respondent or sell to Respondent’s competitors. However, Respondent

impeded that choice in this case when it made an unannounced change in the

formula. Respondent altered the price it offered hog producers without the hog

producers knowing that the price structure had changed. Had hog producers

been alerted to the change, they could have shopped their hogs to other packers

to determine if they could obtain a better price for their hogs than Respondent’s

price under its changed formula. As Complainant states, the purpose of section

201.99 of the Regulations (9 C.F.R. § 201.99) “is to provide some basic level

of similarity to allow sellers to evaluate different purchase offers”

(Complainant’s Post-Hearing Brief at 91). The assessment of economic harm

to hog producers because of the change would therefore have been whatever

higher market price they might have been able to obtain from Respondent’s

competitors. Complainant, however, offered no evidence on the prices that hog

producers could have received from other packers. The true extent of the

economic harm to hog producers who sold hogs to Respondent on a carcass

merit basis is therefore unknown. However, at the very least, Respondent’s

failure to notify hog producers of the change in the formula to estimate lean

percent impeded competition.

Even assuming the measure of economic harm to hog producers is, as

Complainant maintains, the difference in the price Respondent paid to hog

producers when Respondent used the Purdue formula and the price Respondent

would have paid these same producers had Respondent used the Danish

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formula, this harm was still minimized. Respondent has paid the difference to

many of the hog producers, with interest. Furthermore, Respondent voluntarily

sought to come into compliance with section 201.99 of the Regulations

(9 C.F.R. § 201.99) immediately after GIPSA brought the violations to

Respondent’s attention. I accordingly find that a monetary penalty is not

appropriate in the circumstances of this case.

Complainant argues Respondent also violated section 201.99(e) of the

Regulations (9 C.F.R. § 201.99(e)) when Respondent failed to tell Heartland

Pork Enterprises, Inc., of the “when and why” of the formula change. Although

Complainant did not specifically allege this violation in the Amended

Complaint or the revised Amended Complaint, I consider the argument under

the general allegation in the revised Amended Complaint that Respondent

violated section 201.99 of the Regulations (9 C.F.R. § 201.99) when

Respondent failed to notify hog producers of the change in the formula to

estimate lean percent. Complainant, however, does not specify in its allegation

what details of the “when and why” Respondent failed to disclose. The

allegation is therefore too ambiguous to serve as a basis for a finding of a

violation.

Complainant also contends Respondent’s agreement with Tyson Foods to

exempt Tyson Foods from the formula change constituted disparate treatment

of other hog producers who had agreements with Respondent similar to

Respondent’s agreement with Tyson Foods. Complainant did not allege

disparate treatment in the Amended Complaint or the revised Amended

Complaint. I therefore do not find this to be a violation. I also do not find that

Respondent’s use of the Purdue formula, which the record indicates more

accurately estimates lean percent than the Danish formula, constitutes a false

statement.

Complainant further contends Respondent’s failure to notify hog producers

of the formula change violated its good faith duty to hog producers to notify

them of changes in the terms of their contracts. However, Complainant

acknowledges that he did not allege in the Amended Complaint that a breach of

contract was a violation of the Packers and Stockyards Act (Complainant’s

Post-Hearing Reply Brief at 15). Accordingly, as it was not alleged in the

Amended Complaint or the revised Amended Complaint, I do not find a

violation based on an alleged breach of contract.

Complainant seeks a “broad” cease and desist order. An order must bear a

“reasonable relation to the unlawful practice found to exist.” Swift & Company

v. United States, 317 F.2d 53, 56 (7th Cir. 1963). The Order therefore reflects

the conduct found unlawful in this Decision and Order.


ADDITIONAL CONCLUSIONS BY THE JUDICIAL OFFICER

Complainant’s Appeal of Procedural Rulings

Complainant raises two issues in Complainant’s Appeal of Procedural

Rulings. First, Complainant contends the Chief ALJ erred when he ordered

Complainant to provide Respondent with the names of Complainant’s potential

producer witnesses prior to the scheduled hearing date (Complainant’s Appeal

of Procedural Rulings at 1-3).

On July 10, 2000, the Chief ALJ issued a ruling requiring Complainant to

provide Respondent with the names of all of Complainant’s “proposed

witnesses by Monday, August 10” (Summary of Teleconferences and Rulings

at 2). The Chief ALJ does not identify the year in which Complainant is

required to provide Respondent with the names of Complainant’s proposed

witnesses. The first year, after the Chief ALJ issued the July 10, 2000,

Summary of Teleconferences and Rulings, in which August 10 falls on a

Monday is 2009. However, based on the record before me, I do not find the

Chief ALJ required Complainant to provide Respondent with the names of

Complainant’s proposed witnesses by Monday, August 10, 2009. Instead, I

infer the Chief ALJ ordered Complainant to provide Respondent with the names

of all Complainant’s proposed witnesses either by Monday, August 7, 2000, or

by Thursday, August 10, 2000.

The July 10, 2000, Summary of Teleconferences and Rulings establishes

that the scheduled date of hearing was July 18, 2000 (Summary of

Teleconferences and Rulings at 1), and the transcripts establish that the hearing

was conducted on July 18, 19, 20, 21, 25, 26, 27, and 28, 2000; September 25,

26, and 27, 2000; and March 27, 28, and 29, 2001. Therefore, the Chief ALJ

required Complainant to provide Respondent with the names of Complainant’s

proposed witnesses after 8 days of the 14-day hearing had been completed.

Section 1.140(a)(1)(iv) of the Rules of Practice provides that an

administrative law judge may order the parties to furnish a list of anticipated

witnesses, but a party need not furnish the names of anticipated witnesses, as

follows:

§ 1.140 Conferences and procedure.

(a) Purpose and scope. (1) Upon motion of a party or upon the

Judge’s own motion, the Judge may direct the parties or their counsel to

attend a conference at any reasonable time, prior to or during the course

of the hearing, when the Judge finds that the proceeding would be

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expedited by a conference. Reasonable notice of the time, place, and

manner of the conference shall be given. The Judge may order each of

the parties to furnish at or subsequent to the conference any or all of the

following:

. . . .

(iv) A list of anticipated witnesses who will testify on behalf of the

party. At the discretion of the party furnishing such list of witnesses, the

names of the witnesses need not be furnished if they are otherwise

identified in some meaningful way such as a short statement of the type

of evidence they will offer.

7 C.F.R. § 1.140(a)(1)(iv).

Under section 1.140(a)(1)(iv) of the Rules of Practice (7 C.F.R. §

1.140(a)(1)(iv)), each party has discretion to identify anticipated witnesses in

any way the party deems appropriate so long as the anticipated witnesses are

identified in some meaningful way. A party need not provide a reason for

refusing to furnish the name of an anticipated witness. Under the Rules of

Practice, an administrative law judge may not order a party to name anticipated

witnesses who will testify on behalf of the party; an administrative law judge

may merely order a party to identify anticipated witnesses in a meaningful way.

On August 25, 1999, Administrative Law Judge Edwin S. Bernstein ordered

Complainant to provide Respondent’s attorneys with a witness list, “including

brief summaries of the witnesses’ proposed testimonies” (August 25, 1999,

Summary of Telephone Conference at 1). On November 16, 1999, Complainant

filed Complainant’s List of Anticipated Witnesses which identifies by name,

position, and address 19 of Complainant’s anticipated witnesses and provides

a statement of the testimony to be given by these 19 anticipated witnesses. In

addition, Complainant lists unnamed anticipated witnesses, as follows:

Pork Producers

Various Locations In Illinois, Iowa and Missouri

These unnamed witnesses consist of a group of approximately seven (7)

to fifteen (15) pork producers from whom Respondent purchased hogs

during the period of alleged violations. These producers are expected

to testify regarding their business dealings with Respondent, including

when each became aware of the formula change, and the effect of

Respondent’s formula change on their businesses.


See 7 C.F.R. § 1.143(b)(2).14

Complainant’s List of Anticipated Witnesses at 5.

I find Complainant identified these unnamed anticipated witnesses in a

meaningful way. Therefore, I conclude the Chief ALJ erred when he ordered

Complainant to provide Respondent with the names of these anticipated

witnesses. However, I find the Chief ALJ’s error harmless.

Second, Complainant contends the Chief ALJ erroneously denied

Complainant’s “Motion for Ruling that Respondent Failed to Comply with the

Presiding ALJ’s Subpoena Duces Tecum” on the ground that Complainant did

not file the motion timely (Complainant’s Appeal of Procedural Rulings at 3-4).

On July 16, 2001, Complainant filed a “Motion for Ruling that Respondent

Failed to Comply with the Presiding ALJ’s Subpoena Duces Tecum” requesting

that the Chief ALJ find Respondent failed to comply with a subpoena duces

tecum issued by the Chief ALJ on September 13, 2000. On January 28, 2002,

the Chief ALJ denied Complainant’s “Motion for Ruling that Respondent Failed

to Comply with the Presiding ALJ’s Subpoena Duces Tecum” stating

Complainant filed the motion almost 4 months after the close of the hearing and

concluding Complainant did not file the motion timely (Order Granting in Part

and Denying in Part Complainant’s Procedural Motions--Order Correcting

Transcript at 2).

The Rules of Practice contain no restriction on the time for filing motions,

except motions concerning the complaint. Complainant’s “Motion for Ruling14

that Respondent Failed to Comply with the Presiding ALJ’s Subpoena Duces

Tecum” does not concern the Complaint, the Amended Complaint, or the

revised Amended Complaint. Therefore, I agree with Complainant’s contention

that the Chief ALJ’s basis for denying Complainant’s “Motion for Ruling that

Respondent Failed to Comply with the Presiding ALJ’s Subpoena Duces

Tecum” is error. However, I find the Chief ALJ’s error harmless.

Complainant requests that I consider Complainant’s “Motion for Ruling that


Tecum” on the merits (Complainant’s Appeal of Procedural Rulings at 4).

Complainant’s only request in Complainant’s “Motion for Ruling that


Tecum” is that the Chief ALJ find Respondent failed to comply with the

September 13, 2000, subpoena duces tecum (Motion for Ruling that Respondent

Failed to Comply with the Presiding ALJ’s Subpoena Duces Tecum at 7).

Randy Krueger, one of Respondent’s employees assigned to respond to the

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September 13, 2000, subpoena duces tecum, testified that Respondent

inadvertently failed to provide Complainant one file that was responsive to the

September 13, 2000, subpoena duces tecum (Tr. 2215-16). Based on Randy

Krueger’s testimony, I find Respondent failed to provide all of the documents

responsive to the September 13, 2000, subpoena duces tecum.

Complainant’s Appeal Petition

Complainant raises five issues in Complainant’s Appeal Petition. First,

Complainant contends the Chief ALJ erroneously failed to conclude that

Respondent’s failure, prior to the purchase of hogs on a carcass merit basis, to

notify hog producers of the change in the grading to be used in purchase

transactions is a violation of section 201.99(a) of the Regulations (9 C.F.R. §

201.99(a)) (Complainant’s Appeal Brief at 7-11).

I disagree with Complainant’s contention that the Chief ALJ failed to

conclude that Respondent violated section 201.99(a) of the Regulations

(9 C.F.R. § 201.99(a)). The Chief ALJ found the Fat-O-Meat’er, the Danish

formula, and the Purdue formula are all “grading to be used” as that term is used

in section 201.99(a) of the Regulations (9 C.F.R. § 201.99(a)) (Initial Decision

and Order at 26). Moreover, the Chief ALJ concluded Respondent violated

section 201.99(a) of the Regulations (9 C.F.R. § 201.99(a)), as follows:

Respondent, Excel Corporation, violated section 201.99(a) of the

Regulations (9 C.F.R. § 201.99(a)[)] and section 202(a) of the Packers

and Stockyards Act, as amended (7 U.S.C. § 192(a)), when it failed to

notify producers of the change in the formula to estimate lean percent.

Initial Decision and Order at 27.

Second, Complainant contends the Chief ALJ’s conclusion that Respondent

violated a new duty, established in this proceeding, to disclose the lean percent

formula to hog producers prior to purchase, whether requested or not, is not

warranted in the facts of this case (Complainant’s Appeal Brief at 11-17).

I agree with Complainant’s contention that the Chief ALJ erroneously found

that Respondent violated a new duty, established in this proceeding. Section

201.99(a) of the Regulations (9 C.F.R. § 201.99(a)) provides that each packer

purchasing livestock on a carcass merit basis shall, prior to the purchase, make

known to the seller the details of the purchase contract, including the grading

to be used. The Chief ALJ found the Fat-O-Meat’er, the Danish formula, and

the Purdue formula are all “grading to be used” as that term is used in section


See note 11.15

See note 12.16

201.99(a) of the Regulations (9 C.F.R. § 201.99(a)) (Initial Decision and Order

at 26).

The Packers and Stockyards Administration adopted section 201.99 of the

Regulations (9 C.F.R. § 201.99) in 1968 (33 Fed. Reg. 2760 (Feb. 9, 1968)).

The Packers and Stockyards Administration also announced that section 201.99

of the Regulations (9 C.F.R. § 201.99) “sets forth the official position of the

Packers and Stockyards Administration that to engage in the practices

prohibited by the regulation is a violation of the statute.” (RX 50 at 35.)

However, at the time section 201.99 of the Regulations (9 C.F.R. § 201.99)

took effect in 1968, regulations promulgated under the Packers and Stockyards

Act were advisory only. Then, in 1974, the Packers and Stockyards15

Administration stated that it could issue substantive regulations (i.e., regulations

having the force and effect of law) as well as advisory regulations and that

whether a particular regulation was advisory or substantive was to be

determined on a case-by-case basis. In 1984, the Packers and Stockyards16

Administration reviewed section 201.99 of the Regulations (9 C.F.R. § 201.99),

and stated that, except for a proviso in section 201.99(d) of the Regulations

(9 C.F.R. § 201.99(d)) (not relevant to this proceeding), it was retaining section

201.99 of the Regulations (9 C.F.R. § 201.99) because the reasons in 1968 for

adopting the section “remain equally valid today.” (49 Fed. Reg. 37,371 (Sept.

24, 1984).) Therefore, I disagree with the Chief ALJ’s finding that Respondent

violated a new duty established in this proceeding. Instead, I find Respondent’s

duty to disclose to hog producers that it was changing the formula used to

estimate lean percent, prior to Respondent’s purchase of hogs on a carcass merit

basis, was embodied in a regulation in 1968, which regulation has had the force

and effect of law at least since 1984.

Third, Complainant contends the Chief ALJ’s cease and desist order does

not bear a reasonable relation to the unlawful practice the Chief ALJ found to

exist, as follows:

The ALJ found that respondent violated a new duty by failing to provide

the details of grading, (i.e., the formula) to producers prior to purchase.

To properly address the violation that the ALJ states Respondent

committed, the Order should require Respondent to cease and desist

from failing to provide the details of any change in the formula used to

estimate lean percent. As issued, the first sentence of the Order does not

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62 Agric. Dec. 196

231

FTC v. Colgate-Palmolive Co., 380 U.S. 374, 394-95 (1965); FTC v. National Lead Co.,17

352 U.S. 419, 429 (1957); Standard Oil Company of California v. FTC , 577 F.2d 653, 662 (9th Cir.

1978); Thiret v. FTC , 512 F.2d 176, 180-81 (10th Cir. 1975); Spiegel, Inc. v. FTC , 411 F.2d 481,

484-85 (7th Cir. 1969); Swift & Co. v. United States, 317 F.2d 53, 56 (7th Cir. 1963); Gellman v.

FTC , 290 F.2d 666, 670 (8th Cir. 1961); Carter Products, Inc. v. FTC , 268 F.2d 461, 498 (9th Cir.),

cert. denied, 361 U.S. 884 (1959).

relate to the ALJ’s finding that the Respondent violated a new duty to

disclose the formula.

Complainant’s Appeal Brief at 18 (emphasis in original).

A cease and desist order must bear a reasonable relation to the unlawful

practice found to exist. The Chief ALJ states “[d]etailed specifications about17

grading (i.e., the formula) must now be provided to producers pursuant to

section 201.99(a)” of the Regulations (9 C.F.R. § 201.99(a)) (Initial Decision

and Order at 20). The Chief ALJ ordered Respondent to “cease and desist from

failing to notify livestock sellers . . . of the details of any change in the formula

used to estimate lean meat percent.” (Initial Decision and Order at 27.) I do not

find that the Chief ALJ’s cease and desist order bears a reasonable relation to

the unlawful practice the Chief ALJ found to exist. I find Respondent’s

unlawful practice was Respondent’s failure to make known to hog sellers that

it was changing the formula to estimate lean percent prior to purchasing hogs

on a carcass merit basis from those sellers. I have framed a cease and desist

order which bears a reasonable relation to Respondent’s unlawful practice.

Fourth, Complainant contends the Chief ALJ’s order “seeks to impose

requirements upon Respondent that are beyond the scope of the Secretary’s

authority” (Complainant’s Appeal Brief at 17-19).

The Chief ALJ’s states in the Order:

Order

Upon receipt from Complainant of the names of sellers who sold hogs

to Respondent between October 1997 and July 1998 under Respondent’s

changed formula and who may have received less than they would have

received under the formula before it was changed and who have not

otherwise been compensated or who otherwise have not resolved the

matter through agreement with Respondent, Respondent shall promptly

notify such sellers in writing that Respondent agrees to allow such

sellers to submit the matter to arbitration for resolution.


62 Fed. Reg. 40,924-28 (July 31, 1997); 7 C.F.R. § 3.91(b)(6)(i).18

Initial Decision and Order at 27.

Section 203(b) of the Packers and Stockyards Act (7 U.S.C. § 193(b)) sets

forth the sanctions the Secretary of Agriculture may impose upon a packer

found to have violated subchapter II of the Packers and Stockyards Act

(7 U.S.C. §§ 191-198b). Section 203(b) of the Packers and Stockyards Act

(7 U.S.C. § 193(b)) provides the Secretary of Agriculture shall issue an order

requiring the packer to cease and desist from continuing the violation.

Moreover, the Secretary of Agriculture may assess the packer a civil penalty of

not more than $10,000 for each violation of subchapter II of the Packers and

Stockyards Act (7 U.S.C. §§ 191-198b). Pursuant to the Federal Civil Penalties

Inflation Adjustment Act of 1990, as amended (28 U.S.C. § 2461 note), the

Secretary of Agriculture, by regulation effective September 2, 1997, adjusted

the civil monetary penalty that may be assessed a packer under section 203(b)

of the Packers and Stockyards Act (7 U.S.C. § 193(b)) by increasing the

maximum civil penalty from $10,000 to $11,000.18

Section 203(b) of the Packers and Stockyards Act (7 U.S.C. § 193(b)) does

not authorize restitution to hog producers as a sanction for violation of the

Packers and Stockyards Act or the Regulations. Therefore, I agree with

Complainant’s contention that the Chief ALJ is not authorized by section 203(b)

of the Packers and Stockyards Act (7 U.S.C. § 193(b)) to require Respondent

to provide restitution to hog producers for the costs incurred by hog producers

because of Respondent’s violations of section 201.99(a) of the Regulations

(9 C.F.R. § 201.99(a)). Accordingly, I do not adopt the portion of the Chief

ALJ’s Order that requires Respondent to notify sellers that Respondent agrees

to allow sellers to submit the matter to arbitration for resolution.

Fifth, Complainant contends the Chief ALJ’s failure to assess a severe civil

penalty is error (Complainant’s Appeal Brief at 19-25).

Section 203(b) of the Packers and Stockyards Act (7 U.S.C. § 193(b))

provides that when assessing a civil penalty for violations of subchapter II of

the Packers and Stockyards Act (7 U.S.C. §§ 191-198b), the Secretary of

Agriculture must consider the gravity of the offense, the size of the business

involved, and the effect of the penalty on the person’s ability to continue in

business.

One of the fundamental purposes of the Packers and Stockyards Act is to

protect sellers of livestock from unfair or deceptive practices of packers.

Section 201.99(a) of the Regulations (9 C.F.R. § 201.99(a)) is designed “to

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62 Agric. Dec. 196

233

provide safeguards which are necessary in order to protect the interests of

producers selling livestock to packers on a carcass grade, carcass weight, or

carcass grade and weight basis” (33 Fed. Reg. 2760 (Feb. 9, 1968)) and “to

assure that producers selling on a carcass basis are fully informed of the terms

and conditions which apply to the sale and fairly treated” (48 Fed. Reg. 42,826

(Sept. 20, 1983)). Respondent violated section 201.99(a) of the Regulations

(9 C.F.R. § 201.99(a)) by failing to notify hog producers, prior to Respondent’s

purchase of hogs on a carcass merit basis, that it changed the formula used to

estimate lean percent. Hog producers had agreed to sell hogs to Respondent

knowing Respondent used the Fat-O-Meat’er as the grading system to estimate

lean percent. The Danish formula was embedded in the Fat-O-Meat’er. When

Respondent abandoned the Danish formula and adopted the Purdue formula, it

changed the grading to be used and the manner in which payment to hog

producers would be determined without informing hog producers. The record

establishes that many hog producers who sold hogs to Respondent on a carcass

merit basis during the period between October 23, 1997, and July 20, 1998,

received less money for their hogs than they would have received had

Respondent not changed the formula to estimate lean percent.

Respondent has the right to change the formula to estimate lean percent as

long as Respondent notifies hog producers of the formula change prior to

purchasing hogs on a carcass merit basis from those producers. Since

Respondent has the right, after notice, to alter the price it pays by changing its

formula for estimating lean percent, hog producers would not be legally harmed

by the change itself.



impeded that choice when it made an unannounced change in the formula.

Respondent thereby altered the price it offered hog producers without the hog




price under its changed formula. Respondent’s failure to notify hog producers

of the change in the formula to estimate lean percent impeded competition. As

Complainant states, the purpose of section 201.99 of the Regulations (9 C.F.R.

§ 201.99) “is to provide some basic level of similarity to allow sellers to

evaluate different purchase offers” (Complainant’s Post-Hearing Brief at 91).

The assessment of harm to hog producers because of the change would

therefore have been whatever higher market price they might have been able to

obtain from Respondent’s competitors. Therefore, I find Respondent’s violation

of section 201.99(a) of the Regulations (9 C.F.R. § 201.99(a)) grave.


In re Steven Bourk (Decision as to Steven Bourk and Carmella Bourk), 61 Agric. Dec. 25, 4919

(2002); In re H .C. MacClaren, Inc., 60 Agric. Dec. 733, 762-63 (2001), appeal docketed,

No. 02-3006 (6th Cir. Jan. 3, 2002); In re Karl Mitchell, 60 Agric. Dec. 91, 130 (2001), aff’d,

42 Fed. Appx. 991, 2002 W L 1941189 (9th Cir. Aug. 22, 2002); In re American Raisin Packers,

Inc., 60 Agric. Dec. 165, 190 n.8 (2001), aff’d, No. CIV F 015606 AW I SMS (E.D. Cal. M ay 18,

2001), appeal docketed, No. 02-15602 (9th Cir. Mar. 25, 2002); In re Fred Hodgins, 60 Agric. Dec.

73, 88 (2001) (Decision and Order on Remand), aff’d, 33 Fed. Appx. 784, 2002 W L 649102 (6th

Cir. 2002) (unpublished); In re Reginald Dwight Parr, 59 Agric. Dec. 601, 626 (2000), aff’d per

curiam , 273 F.3d 1095 (5th Cir. 2001) (Table); In re Greenville Packing Co., 59 Agric. Dec. 194,

226-27 (2000), aff’d in part and transferred in part, No. 00-CV-1054 (N.D.N.Y. Sept. 4, 2001),

(continued...)

Further, the record establishes that the size of Respondent’s business is large

(RX 55; Tr. 131, 2329). Based on the size of Respondent’s business, I do not

find that the assessment of a substantial civil penalty would affect Respondent’s

ability to continue in business.

The United States Department of Agriculture’s sanction policy is set forth

in In re S.S. Farms Linn County, Inc. (Decision as to James Joseph Hickey and

Shannon Hansen), 50 Agric. Dec. 476, 497 (1991), aff’d, 991 F.2d 803, 1993

WL 128889 (9th Cir. 1993) (not to be cited as precedent under 9th Circuit Rule

36-3):

[T]he sanction in each case will be determined by examining the nature

of the violations in relation to the remedial purposes of the regulatory

statute involved, along with all relevant circumstances, always giving

appropriate weight to the recommendations of the administrative

officials charged with the responsibility for achieving the congressional

purpose.

The recommendations of administrative officials charged with the

responsibility for achieving the congressional purpose of the regulatory statute

are highly relevant to any sanction to be imposed and are entitled to great

weight in view of the experience gained by administrative officials during their

day-to-day supervision of the regulated industry. In re S.S. Farms Linn County,

Inc., 50 Agric. Dec. at 497. The administrative officials charged with the

responsibility of administering the Packers and Stockyards Act recommend that

I assess Respondent an $8,000,000 civil penalty.

However, the recommendation of administrative officials as to the sanction

is not controlling, and in appropriate circumstances, the sanction imposed may

be considerably less, or different, than that recommended by administrative

officials.19

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(...continued)19

appeal withdrawn, No. 01-6214 (2d Cir. Apr. 30, 2002); In re James E. Stephens, 58 Agric. Dec.

149, 182 (1999); In re Western Sierra Packers, Inc., 57 Agric. Dec. 1578, 1604 (1998); In re

Colonial Produce Enterprises, Inc., 57 Agric. Dec. 1498, 1514 (1998); In re Judie Hansen, 57

Agric. Dec. 1072, 1141 (1998), appeal dismissed, 221 F.3d 1342 (Table), 2000 W L 1010575 (8th

Cir. 2000) (per curiam); In re Richard Lawson , 57 Agric. Dec. 980, 1031-32 (1998), appeal

dismissed, No. 99-1476 (4th Cir. June 18, 1999); In re Scamcorp, Inc., 57 Agric. Dec. 527, 574

(1998); In re M arilyn Shepherd , 57 Agric. Dec. 242, 283 (1998); In re Allred’s Produce, 56 Agric.

Dec. 1884, 1918-19 (1997), aff’d, 178 F.3d 743 (5th Cir.), cert. denied, 528 U.S. 1021 (1999); In

re Kanowitz Fruit & Produce, Co., 56 Agric. Dec. 942, 953 (1997) (Order Denying Pet. for

Recons.); In re William E. Hatcher, 41 Agric. Dec. 662, 669 (1982); In re Sol Salins, Inc., 37 Agric.

Dec. 1699, 1735 (1978); In re Braxton McLinden Worsley, 33 Agric. Dec. 1547, 1568 (1974).

In re Jim Aron, 58 Agric. Dec. 451, 462 (1999).20

The purpose of an administrative sanction is to accomplish the remedial

purposes of the Packers and Stockyards Act by deterring future similar

violations of the Packers and Stockyards Act. This case involves serious20

violations of the Packers and Stockyards Act and the Regulations. However,

based on the record before me, I agree with the Chief ALJ’s determination that

a civil penalty is not appropriate in the circumstances of this case. I find

Respondent’s compliance with section 201.99(a) of the Regulations (9 C.F.R.

§ 201.99(a)) immediately after GIPSA brought the violations to Respondent’s

attention and Respondent’s payment, with interest, to many hog producers that

received less for their hogs when Respondent used the Purdue formula than they

would have received had Respondent used the Danish formula, indicate that a

civil penalty is not necessary to deter Respondent from future violations of a

similar nature.

Respondent’s Appeal Petition

Respondent raises seven issues in Respondent’s Appeal Petition. First,

Respondent contends the Chief ALJ erroneously concluded Respondent violated

section 202(a) of the Packers and Stockyards Act (7 U.S.C. § 192(a)).

Respondent contends its failure to notify hog producers that it changed the

formula to estimate lean percent, prior to Respondent’s purchase of hogs on a

carcass merit basis, is not an “unfair or deceptive practice” as that term is used

in section 202(a) of the Packers and Stockyards Act (7 U.S.C. § 192(a)).

Respondent states the purpose of the Packers and Stockyards Act is to safeguard

farmers and ranchers against receiving less than the true market value of their

livestock and there was no evidence that any hog producer received less than

true market value for his or her hogs. Respondent further asserts it changed the


See note 4.21

See note 5.22

formula to estimate lean percent to improve the accuracy of the way Respondent

paid hog producers and, once hog producers learned of Respondent’s change of

the formula, the hog producers did not care that the change had been made or

that the change had been made without their knowledge. Respondent contends,

“[u]nder these circumstances there is simply no theory or precedent for finding

that the equation change amounted to an unfair or deceptive practice.”

(Respondent’s Appeal Pet. at 11-13.)

I disagree with Respondent’s contention that the Chief ALJ erroneously

concluded Respondent violated section 202(a) of the Packers and Stockyards

Act (7 U.S.C. § 192(a)). While one of the purposes of the Packers and

Stockyards Act is to safeguard farmers and ranchers against receiving less than

true market value for their livestock, as Respondent contends, the purpose of the

Packers and Stockyards Act is much broader than Respondent contends.

The sponsors of the bill later enacted as the Packers and Stockyards Act

(H.R. 6230) described the bill as one of the most comprehensive regulatory

measures ever considered. Similarly, the House Report applicable to the bill21

describes the bill as giving the Secretary of Agriculture broad authority, as

follows:

A careful study of the bill, will, I am sure, convince one that it, and

existing laws, give the Secretary of Agriculture complete inquisitorial,

visitorial, supervisory, and regulatory power over the packers,

stockyards and all activities connected therewith; that it is a most

comprehensive measure and extends farther than any previous law in the

regulation of private business, in time of peace, except possibly the

interstate commerce act.

H.R. Rep. No. 67-77, at 2 (1921).

The Conference Report applicable to H.R. 6230 states “Congress intends to

exercise, in the bill, the fullest control of packers and stockyards which the

Constitution permits[.]” H.R. Conf. Rep. No. 67-324, at 3 (1921).

Further, Congress has repeatedly broadened the Secretary of Agriculture’s

authority under the Packers and Stockyards Act. The primary purpose of the22

Packers and Stockyards Act was described in a House Report, in connection

with a major amendment of the Packers and Stockyards Act enacted in 1958, as

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62 Agric. Dec. 196

237

See note 6.23

See note 7.24

See note 8.25

See note 9.26

follows:

The Packers and Stockyards Act was enacted by Congress in 1921. The

primary purpose of this Act is to assure fair competition and fair trade

practices in livestock marketing and in the meatpacking industry. The

objective is to safeguard farmers and ranchers against receiving less than

the true market value of their livestock and to protect consumers against

unfair business practices in the marketing of meats, poultry, etc.

Protection is also provided to members of the livestock marketing and

meat industries from unfair, deceptive, unjustly discriminatory, and

monopolistic practices of competitors, large or small.[23]

H.R. Rep. No. 85-1048, at 1 (1957), reprinted in 1958 U.S.C.C.A.N. 5213.

Courts that have examined the Packers and Stockyards Act have uniformly

described the Packers and Stockyards Act as constituting a broader grant of

authority to regulate than previous legislation. Moreover, the Packers and24

Stockyards Act is remedial legislation and should be liberally construed to

effectuate its purposes. The purposes of the Packers and Stockyards Act are25

varied. Two of the primary purposes are to prevent economic harm to producers

and to maintain open and free competition.26

The record establishes that most hog producers who sold hogs to

Respondent received less for their hogs when Respondent used the Purdue

formula to estimate lean percent than they would have received if Respondent

had used the Danish formula (CX 37, CX 38). However, Respondent has the

right (unless a contract provides otherwise) to change the formula to estimate

lean percent as long as Respondent notifies hog producers of the formula

change prior to purchasing hogs on a carcass merit basis from those producers.

Since Respondent, or any other packer, has the right, after notice, to alter the

price it pays by changing its formula for estimating lean percent, hog producers

would not be legally harmed by the change.




impeded that choice in this case when it made an unannounced change in the

formula. Respondent altered the price it offered hog producers without the hog




price under its changed formula. As Complainant states, the purpose of section

201.99 of the Regulations (9 C.F.R. § 201.99) “is to provide some basic level

of similarity to allow sellers to evaluate different purchase offers”

(Complainant’s Post-Hearing Brief at 91). The assessment of economic harm

to hog producers because of the change would therefore have been whatever

higher market price they might have been able to obtain from Respondent’s

competitors. Complainant, however, offered no evidence on the prices that hog

producers could have received from other packers. The true extent of the

economic harm to hog producers who sold hogs to Respondent on a carcass

merit basis is therefore unknown. However, at the very least, Respondent’s

failure to notify hog producers of the change in the formula to estimate lean

percent impeded competition. Thus, even if I found that Respondent paid hog

producers “true market value” for their hogs, as Respondent contends, I would

find that Respondent violated the Packers and Stockyards Act.

Moreover, I find Respondent’s argument that it changed the formula used

to estimate lean percent merely to improve the accuracy of the estimate,

irrelevant to the issue of whether Respondent violated the Packers and

Stockyards Act. The merit of the Purdue formula is not the issue in this

proceeding. The record indicates the Purdue formula more accurately estimates

lean percent than the Danish formula and Respondent adopted the Purdue

formula for the purpose of improving the accuracy of Respondent’s estimate of

lean percent. However, it is Respondent’s failure to notify hog producers of the

change in the formula that violates the Packers and Stockyards Act, not the

change itself. I do not find Respondent’s purpose for changing the formula to

estimate lean percent relevant to issue of whether Respondent violated the

Packers and Stockyards Act when Respondent failed to notify hog producers

that it was changing the formula to estimate lean percent.

Finally, I find Respondent’s argument that, when hog producers learned

about the formula change, they did not care that the change had been made or

that Respondent failed to inform them about the formula change, irrelevant to

the issue of whether Respondent violated the Packers and Stockyards Act.

Respondent cites no authority supporting its contention that the feelings of hog

producers have a bearing on whether Respondent engaged in an unfair or

deceptive practice under section 202(a) of the Packers and Stockyards Act

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62 Agric. Dec. 196

239

Freeman United Coal Mining Co. v. Federal Mine Safety & Health Review Comm’n, 108 F.3d27

358, 362 (D.C. Cir. 1997); Thomas v. Hinson , 74 F.3d 888, 889 (8th Cir. 1996); Georgia Pacific

Corp. v. Occupational Safety & Health Review Comm’n, 25 F.3d 999, 1004-05 (11th Cir. 1994);

Throckmorton v. NTSB , 963 F.2d 441, 444 (D.C. Cir. 1992); The Great American Houseboat Co.

v. United States, 780 F.2d 741, 746 (9th Cir. 1986); United States v. Sun & Sand Imports, Ltd., 725

F.2d 184, 187 (2d Cir. 1984).

(7 U.S.C. § 192(a)), and I cannot find authority which supports Respondent’s

contention. The determination as to whether Respondent violated section

202(a) of the Packers and Stockyards Act (7 U.S.C. § 192(a)) is made by the

administrative law judge, the judicial officer, and, ultimately, the courts. The

determination is not based on how livestock producers, who the Packers and

Stockyards Act is designed to protect, view Respondent’s actions. Moreover,

the record does not support Respondent’s assertion that hog producers did not

care about Respondent’s change in the formula to estimate lean percent or

Respondent’s failure to inform them about the formula change (Tr. 1046-47,

1084-85, 1091, 1099-1101, 1158-61, 1203-07, 1365-67).

Second, Respondent contends the Chief ALJ erroneously concluded

Respondent violated section 201.99(a) of the Regulations (9 C.F.R. §

201.99(a)). Respondent states section 201.99(a) of the Regulations (9 C.F.R.

§ 201.99(a)) does not mention (1) lean percent, (2) equations, or (3) changes

made either to lean percent or to equations. Thus, Respondent argues section

201.99(a) of the Regulations (9 C.F.R. § 201.99(a)) does not give Respondent

fair notice that, prior to purchasing hogs from producers, it is required to give

those hog producers notice that it is changing the formula to estimate lean

percent. Respondent further contends, as a matter of law, no cease and desist

order can be issued where a respondent does not receive fair notice of what it

is legally required to do and where the cease and desist order would place that

same respondent at a competitive disadvantage. (Respondent’s Appeal Pet. at

13-19.)

In order to satisfy constitutional due process requirements, a regulation must

be sufficiently specific to give regulated parties notice of what conduct is

required or prohibited. I find section 201.99(a) of the Regulations (9 C.F.R.27

§ 201.99(a)) gives Respondent fair notice that it is required to make known to

hog producers any change in the formula to estimate lean percent prior to

Respondent’s purchase of hogs on a carcass merit basis from those producers.

Section 201.99(a) of the Regulations (9 C.F.R. § 201.99(a)) provides that each

packer purchasing livestock on a carcass merit basis shall, prior to the purchase,

make known to the seller the details of the purchase contract. The regulation

explicitly provides that those details include the “grading to be used.”

Generally, “grade” refers to quality and “grading” is an action or process of


M erriam W ebster’s Collegiate Dictionary 505 (10th ed. 1997):28

grade . . . n . . . 1 a . . . (2) : a position in a scale of ranks or qualities . . . 2 a : a

class of things of the same stage or degree[.]

The Oxford English Dictionary, vol. VI, 725, 727 (2d ed. 1991):

grade . . . .

5. a. In things: A degree of comparative quality or value. b. A class of

things, constituted by having the same quality or value.

. . . .

grading . . . .

2. spec. a. The action or process of sorting (produce) into grades according

to quality.

See also Consolidated Water Power & Paper Co. v. Bowles, 146 F.2d 492, 495 (Emer. Ct. App.

1944) (stating the term “grade” is universally understood as referring to quality); Taylor v. J.B. Hill

Co., 189 P.2d 258, 259 (Cal. 1948) (stating “grade” deals with quality; it is a position in a scale of

quality).

sorting (hogs) into categories according to quality. Moreover, the record28

establishes that grading is a system to categorize carcasses and that a formula

to estimate lean percent is part of the grading process (Tr. 654-79, 1498).

Respondent also contends section 201.99 of the Regulations (9 C.F.R. §

201.99) is vague and ambiguous (Respondent’s Appeal Pet. at 26-31).

However, Respondent’s failure to notify hog producers of its change in the

grading to be used violates express terms of section 201.99(a) of the

Regulations (9 C.F.R. § 201.99(a)). Even though section 201.99(a) of the

Regulations (9 C.F.R. § 201.99(a)) does not contain the words “formula” or

“equation” or the term “lean percent,” the plain language of the regulation

requires Respondent to notify hog producers of the “grading to be used” and the

record establishes that the formula to estimate lean percent is a component of

the grading Respondent used.

Respondent asserts the most telling evidence that section 201.99(a) of the

Regulations (9 C.F.R. § 201.99(a)) is vague is Complainant’s inability to put

forth a consistent and coherent interpretation of the regulation. Respondent

contends Complainant has variously stated: (1) Respondent has a duty to notify

hog producers of an equation change because anything that affects payments to

hog producers must be disclosed to the hog producers; (2) Respondent is

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required to report any major change in program or anything that could affect the

amount hog producers are paid; (3) calculation of price is a detail Respondent

must make known to hog producers prior to purchase; (4) calculation of price

and grading to be used are details Respondent must make known to hog

producers prior to purchase; (5) Respondent must provide hog producers with

anything that would have an effect on the items listed in section 201.99(a) of the

Regulations (9 C.F.R. § 201.99(a)); and (6) Respondent must provide hog

producers with information to show how the hogs purchased will be dressed and

priced. (Respondent’s Appeal Pet. at 29-31.)

The record establishes Complainant has continuously and consistently taken

the position that Respondent violated section 201.99(a) of the Regulations

(9 C.F.R. § 201.99(a)) when Respondent failed to notify hog producers that it

was changing the formula to estimate lean percent, prior to Respondent’s

purchase of hogs on a carcass merit basis from those producers. Further,

Respondent’s list of purportedly inconsistent interpretations of section 201.99(a)

of the Regulations (9 C.F.R. § 201.99(a)) appears to be nothing more than

different ways of describing the requirements imposed on packers in section

201.99(a) of the Regulations (9 C.F.R. § 201.99(a)). The descriptions appear

to be consistent with each other and the plain language of the regulation.

Therefore, I reject Respondent’s assertion that Complainant did not put forth a

consistent and coherent interpretation of section 201.99(a) of the Regulations

(9 C.F.R. § 201.99(a)).

Third, Respondent contends the Chief ALJ erroneously found Respondent’s

research director estimated that there would be a 1 percent difference between

what producers received for their hogs when Respondent used the Danish

formula and when Respondent used the Purdue formula (Respondent’s Appeal

Pet. at 19-20).

The Chief ALJ states Respondent’s research director testified that

Respondent estimated that there would be a 1 percent difference between what

producers received for hogs when Respondent used the Danish formula and

when Respondent used the Purdue formula, as follows:

Scott Eilert, Excel’s research director, testified that the company

estimated that there would be a one percent difference in what producers

received between the Danish Formula and the new equation. . . .

(Tr. 966.)

Initial Decision and Order at 5-6.

I examined page 966 of the transcript which the Chief ALJ cites as the basis


for his paraphrase of Dr. Eilert’s testimony. I find no testimony by Dr. Eilert

that Respondent estimated there would be a 1 percent difference between the

amount producers received for their hogs when Respondent used the Danish

formula and when Respondent used the Purdue formula. Instead, Dr. Eilert

answers a hypothetical question regarding a 1 percent change in lean percent

posed by Complainant’s counsel, as follows:

[BY MS. HARPS:]

Q. So is it your testimony that a 1 percent change in the lean percent

would result in a minimal economic impact on the producer?

[BY DR. EILERT:]

A. If a producer -- if a given producer saw a 1 percent change in his

lean point, regardless of the reason, yes, there would be an economic

impact. And that 1 percent -- that economic impact would be -- could

be an increase or could be a decrease.

Q. That’s true. But it would be an economic impact, though?

A. Correct.

Tr. 966.

Moreover, I reviewed all of Dr. Eilert’s testimony. I cannot locate any

testimony by Dr. Eilert that Respondent estimated there would be a 1 percent

difference between the amount producers received for their hogs when

Respondent used the Danish formula and when Respondent used the Purdue

formula. Therefore, I do not adopt the Chief ALJ’s paraphrase of Dr. Eilert’s

testimony that appears on pages 5 and 6 of the Initial Decision and Order.

Fourth, Respondent contends the Chief ALJ erroneously found Respondent

concluded that its agreement with Tyson Foods required Respondent to notify

Tyson Foods of the formula change (Respondent’s Appeal Pet. at 20).

The Chief ALJ found Respondent “concluded that its agreement with Tyson

Foods, which supplied the majority of the hogs for [Respondent’s] Marshall,

Missouri, slaughtering facility, required that Tyson be notified of the formula

change.” (Initial Decision and Order at 6-7.) I cannot locate anything in the

record supporting the Chief ALJ’s finding that Respondent concluded that it

was required by contract to notify Tyson Foods of the change in the formula to

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estimate lean percent. To the contrary, the record establishes Doug Ott,

Respondent’s employee responsible for contracts with hog producers, reviewed

the contracts Respondent had with Tyson Foods and some of the other hog

producers and concluded that Respondent was not required by contract to notify

Tyson Foods or any other hog producer of the change in the formula to estimate

lean percent (Tr. 1396-98, 1848-50). Therefore, I do not adopt the Chief ALJ’s

finding that Respondent concluded that its agreement with Tyson Foods

required Respondent to notify Tyson Foods of the change in the formula to

estimate lean percent.

Fifth, Respondent contends the Chief ALJ erroneously found producer

reaction to Respondent’s formula change was mixed. Respondent states the

evidence demonstrates hog producers did not care that Respondent had changed

the formula for estimating lean percent and did not care that Respondent failed

to provide hog producers with prior notice of the change in the formula to

estimate lean percent. (Respondent’s Appeal Pet. at 20-24.)

The Chief ALJ found among hog producers there was a mixed reaction to

the formula change. Some hog producers favored the change to a more accurate

formula, some hog producers were indifferent to the formula change, and some

hog producers were upset with Respondent’s failure to notify them of the

formula change. (Initial Decision and Order at 10-11.) The Chief ALJ based

his finding that hog producers had a mixed reaction to the formula change on

testimony by William Alan Houchin, a marketing specialist employed by

GIPSA, and Steve E. Ring, the general manager of Hog, Inc. (Tr. 633, 1084,

1091, 1099, 1159).

Mr. Houchin’s testimony is based on interviews with six of Respondent’s

field buyers (Tr. 631). Mr. Houchin testified that one of Respondent’s field

buyers, Jim Shobe, stated that hog producer response to the change in the

formula to estimate lean percent was “indifferent,” which means that “some

people liked the changes and some didn’t.” (Tr. 633.) Respondent contends

that, later in his testimony, Mr. Houchin acknowledged that Mr. Shobe was

referring to hog producer response to Respondent’s June 1998 change to its lean

value matrix and not to hog producer response to Respondent’s use of the

Purdue formula beginning in October 1997 (Respondent’s Appeal Pet. at 23).

While Mr. Houchin’s testimony on this subject is not the mirror of clarity, the

record supports Respondent’s contention that Mr. Shobe characterized hog

producer response to Respondent’s June 1998 change in the lean value matrix

as “indifferent” and that Mr. Shobe was not describing hog producer response

to Respondent’s change in the formula to estimate lean percent (Tr. 645-49;

RX 60 at 2). Therefore, I do not rely on Mr. Houchin’s testimony to support the

finding that hog producers had a mixed reaction to Respondent’s change in the


See also In re Robert B. M cCloy, Jr., 61 Agric. Dec. 173, 210 (2002), appeal docketed,29

No. 02-9543 (10th Cir. July 19, 2002); In re Wallace Brandon (Decision as to Jerry W. Graves and

Kathy Graves), 60 Agric. Dec. 527, 560 (2001), appeal dismissed sub nom. Graves v. United States

Dep’t of Agric., No. 01-3956 (6th Cir. Nov. 28, 2001); In re David M. Zimmerman , 57 Agric. Dec.

1038, 1053-54 (1998); In re Saulsbury Enterprises, 56 Agric. Dec. 82, 90 (1997) (Order Denying

Pet. for Recons.); In re Garelick Farms, Inc., 56 Agric. Dec. 37, 78-79 (1997); In re Volpe Vito,

Inc., 56 Agric. Dec. 166, 245 (1997), aff’d, 172 F.3d 51 (Table), 1999 W L 16562 (6th Cir. 1999)

(not to be cited as precedent under 6th Circuit Rule 206), printed in 58 Agric. Dec. 85 (1999); In

re John T. Gray (Decision as to Glen Edward Cole), 55 Agric. Dec. 853, 860-61 (1996); In re Jim

Singleton , 55 Agric. Dec. 848, 852 (1996); In re William Joseph Vergis, 55 Agric. Dec. 148, 159

(1996); In re Midland Banana & Tomato Co., 54 Agric. Dec. 1239, 1271-72 (1995), aff’d, 104 F.3d

139 (8th Cir. 1997), cert. denied sub nom. Heimann v. Department of Agric., 522 U.S. 951 (1997);

In re Kim Bennett, 52 Agric. Dec. 1205, 1206 (1993); In re Christian King , 52 Agric. Dec. 1333,

1342 (1993); In re Tipco, Inc., 50 Agric. Dec. 871, 890-93 (1991), aff’d per curiam , 953 F.2d 639

(4th Cir.), 1992 W L 14586, printed in 51 Agric. Dec. 720 (1992), cert. denied, 506 U.S. 826 (1992);

In re Rosia Lee Ennes, 45 Agric. Dec. 540, 548 (1986); In re Gerald F. Upton , 44 Agric. Dec. 1936,

1942 (1985); In re Dane O. Petty, 43 Agric. Dec. 1406, 1421 (1984), aff’d, No. 3-84-2200-R (N.D.

Tex. June 5, 1986); In re Eldon Stamper, 42 Agric. Dec. 20, 30 (1983), aff’d, 722 F.2d 1483 (9th

Cir. 1984), reprinted in 51 Agric. Dec. 302 (1992); In re Aldovin Dairy, Inc., 42 Agric. Dec. 1791,

1797-98 (1983), aff’d, No. 84-0088 (M.D. Pa. Nov. 20, 1984); In re King Meat Co., 40 Agric. Dec.

1468, 1500-01 (1981), aff’d, No. CV 81-6485 (C.D. Cal. Oct. 20, 1982), remanded , No. CV

81-6485 (C.D. Cal. M ar. 25, 1983) (to consider newly discovered evidence), order on remand , 42

Agric. Dec. 726 (1983), aff’d, No. CV 81-6485 (C.D. Cal. Aug. 11, 1983) (original order of Oct.

20, 1982, reinstated nunc pro tunc), aff’d, 742 F.2d 1462 (9th Cir. 1984) (unpublished) (not to be

cited as precedent under 9th Circuit Rule 21). See generally Universal Camera Corp. v. NLRB , 340

U.S. 474, 496 (1951) (stating the substantial evidence standard is not modified in any way when

the Board and the hearing examiner disagree); JCC, Inc. v. Commodity Futures Trading Comm’n,

63 F.3d 1557, 1566 (11th Cir. 1995) (stating agencies have authority to make independent

credibility determinations without the opportunity to view witnesses firsthand and are not bound

by an administrative law judge’s credibility findings); Dupuis v. Secretary of Health and Human

Services, 869 F.2d 622, 623 (1st Cir. 1989) (per curiam) (stating while considerable deference is

owed to credibility findings by an administrative law judge, the Appeals Council has authority to

reject such credibility findings); Pennzoil v. Federal Energy Regulatory Comm’n, 789 F.2d 1128,

1135 (5th Cir. 1986) (stating the Commission is not strictly bound by the credibility determinations

of an administrative law judge); Retail, Wholesale & Dep’t Store Union v. NLRB , 466 F.2d 380, 387

(continued...)

formula to estimate lean percent.

Respondent also contends Mr. Ring’s testimony on the subject of hog

producer response to Respondent’s change of the formula to estimate lean

percent is not credible, and the Chief ALJ erred by giving any weight to

Mr. Ring’s testimony (Respondent’s Appeal Pet. at 23-24).

The Judicial Officer is not bound by an administrative law judge’s

credibility determinations and may make separate determinations of witnesses’

credibility, subject only to court review for substantial evidence. Mattes v.

United States, 721 F.2d 1125, 1128-29 (7th Cir. 1983). The Administrative29

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245

(...continued)29

(D.C. Cir. 1972) (stating the Board has the authority to make credibility determinations in the first

instance and may even disagree with a trial examiner’s finding on credibility); 3 Kenneth C. Davis,

Administrative Law Treatise § 17:16 (1980 & Supp. 1989) (stating the agency is entirely free to

substitute its judgment for that of the hearing officer on all questions, even including questions that

depend upon demeanor of the witnesses).

Procedure Act provides that, on appeal from an administrative law judge’s

initial decision, the agency has all the powers it would have in making an initial

decision, as follows:

§ 557. Initial decisions; conclusiveness; review by agency;

submissions by parties; contents of decisions; record

. . . .

(b) When the agency did not preside at the reception of the

evidence, the presiding employee or, in cases not subject to section

554(d) of this title, an employee qualified to preside at hearings pursuant

to section 556 of this title, shall initially decide the case unless the

agency requires, either in specific cases or by general rule, the entire

record to be certified to it for decision. When the presiding employee

makes an initial decision, that decision then becomes the decision of the

agency without further proceedings unless there is an appeal to, or

review on motion of, the agency within time provided by rule. On

appeal from or review of the initial decision, the agency has all the

powers which it would have in making the initial decision except as it

may limit the issues on notice or by rule.

5 U.S.C. § 557(b).

Moreover, the ATTORNEY GENERAL’S MANUAL ON THE ADMINISTRATIVE

PROCEDURE ACT describes the authority of the agency on review of an initial

or recommended decision, as follows:

Appeals and review. . . .

In making its decision, whether following an initial or recommended

decision, the agency is in no way bound by the decision of its

subordinate officer; it retains complete freedom of decision—as though

it had heard the evidence itself. This follows from the fact that a

recommended decision is advisory in nature. See National Labor

Relations Board v. Elkland Leather Co., 114 F.2d 221, 225 (C.C.A. 3,


In re Robert B. McCloy, Jr., 61 Agric. Dec. 173, 212 (2002), appeal docketed, No. 02-954330

(10th Cir. July 19, 2002); In re Wallace Brandon (Decision as to Jerry W. Graves and Kathy

Graves), 60 Agric. Dec. 527, 561-62 (2001), appeal dismissed sub nom. Graves v. United States

Dep’t of Agric., No. 01-3956 (6th Cir. Nov. 28, 2001); In re Sunland Packing House Co., 58 Agric.

Dec. 543, 602 (1999); In re David M. Zimmerman , 57 Agric. Dec. 1038, 1055-56 (1998); In re

Jerry Goetz, 56 Agric. Dec. 1470, 1510 (1997), aff’d, 99 F. Supp. 2d 1308 (D. Kan. 1998), aff’d,

No. 00-3173, 2001 W L 401594 (10th Cir. Apr. 20, 2001) (unpublished); In re Saulsbury

Enterprises, 56 Agric. Dec. 82, 89 (1997) (Order Denying Pet. for Recons.); In re Andershock

Fruitland, Inc., 55 Agric. Dec. 1204, 1229 (1996), aff’d, 151 F.3d 735 (7th Cir. 1998); In re Floyd

Stanley White, 47 Agric. Dec. 229, 279 (1988), aff’d per curiam , 865 F.2d 262, 1988 WL 133292

(6th Cir. 1988); In re King Meat Packing Co., 40 Agric. Dec. 552, 553 (1981); In re M r. & Mrs.

Richard L. Thornton , 38 Agric. Dec. 1425, 1426 (1979) (Remand Order); In re Steve Beech, 37

Agric. Dec. 869, 871-72 (1978); In re Unionville Sales Co., 38 Agric. Dec. 1207, 1208-09 (1979)

(Remand Order); In re National Beef Packing Co., 36 Agric. Dec. 1722, 1736 (1977), aff’d , 605

F.2d 1167 (10th Cir. 1979); In re Edward Whaley, 35 Agric. Dec. 1519, 1521 (1976); In re Dr. Joe

Davis, 35 Agric. Dec. 538, 539 (1976); In re American Commodity Brokers, Inc., 32 Agric. Dec.

1765, 1772 (1973); In re Cardwell Dishmon , 31 Agric. Dec. 1002, 1004 (1972); In re Sy B. Gaiber

& Co., 31 Agric. Dec. 474, 497-98 (1972); In re Louis Romoff, 31 Agric. Dec. 158, 172 (1972).

1940), certiorari denied, 311 U.S. 705.

ATTORNEY GENERAL’S MANUAL ON THE ADM INISTRATIVE PROCEDURE ACT 83

(1947).

However, the consistent practice of the Judicial Officer is to give great

weight to the findings by, and particularly the credibility determinations of,

administrative law judges, since they have the opportunity to see and hear

witnesses testify.30

Respondent contends Mr. Ring’s testimony is tainted both by a dispute

between Respondent and Hog, Inc., over the volume Hog, Inc., is contractually

required to provide Respondent and by Mr. Ring’s unhappiness that Respondent

directly purchased hogs from producers who had earlier sold hogs to

Respondent through Hog, Inc. (Respondent’s Appeal Pet. at 23-24).

Hog, Inc.’s dispute with Respondent and Mr. Ring’s unhappiness with

Respondent are not related to Mr. Ring’s testimony regarding the reaction of

hog producers to Respondent’s change of the formula to estimate lean percent.

I do not find Hog, Inc.’s dispute with Respondent or Mr. Ring’s unhappiness

with Respondent about matters which are not related to this proceeding

sufficient bases to reverse the Chief ALJ’s credibility determination with

respect to Mr. Ring. Therefore, I find no basis to reverse the Chief ALJ’s

finding that hog producers had a mixed reaction to Respondent’s change of the

formula to estimate lean percent.

Sixth, Respondent contends the Chief ALJ erroneously rejects the

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247

importance of Respondent’s evidence that Respondent had no contractual

obligation to some hog producers to notify these hog producers before

Respondent changed the formula to estimate lean percent and Respondent’s

evidence that some hog producers did not care which formula Respondent used

to estimate lean percent. Respondent further states this evidence lends crucial

support to its contention that it had no legal duty to inform hog producers before

changing the formula to estimate lean percent and the Chief ALJ erroneously

describes Respondent’s contention as being that hog producers waived their

right to notification of the change of the formula to estimate lean percent.


The Chief ALJ describes Respondent’s contention as being that some hog

producers contractually waived their right to notice of Respondent’s change of

the formula to estimate lean percent and that some hog producers in effect

waived their right to notice of Respondent’s change of the formula to estimate

lean percent because they did not care whether Respondent changed the formula

(Initial Decision and Order at 17-18). Based on my reading of Respondent’s

filings, I do not find Respondent contends that hog producers waived or in

effect waived a right to notice of Respondent’s change of the formula to

estimate lean percent. Instead, it appears Respondent contends that it had no

duty to inform hog producers of the change in the formula and Respondent’s

contracts with hog producers and hog producer reaction to Respondent’s

formula change indicate that Respondent had no legal duty to notify hog

producers of the change in the formula to estimate lean percent. Therefore, I do

not adopt the Chief ALJ’s discussion concerning the waiver of a right under the

Packers and Stockyards Act and the Regulations.

However, I reject Respondent’s contention that its contracts with some hog

producers and the reaction of some hog producers to Respondent’s change of

the formula to estimate lean percent indicate that Respondent had no obligation

under the Packers and Stockyards Act and the Regulations to notify hog

producers before changing the formula to estimate lean percent. Section

201.99(a) of the Regulations (9 C.F.R. § 201.99(a)) requires each packer

purchasing livestock on a carcass merit basis, prior to the purchase, to make

known to the seller the details of the purchase contract, including the grading

to be used. The formula to estimate lean percent is a part of the “grading”

within the meaning of section 201.99 of the Regulations (9 C.F.R. § 201.99) as

it is an element of Respondent’s carcass evaluation process. Respondent legal

obligation under section 201.99(a) of the Regulations (9 C.F.R. § 201.99(a)) and

section 202(a) of the Packers and Stockyards Act (7 U.S.C. § 192(a)) is neither

affected by Respondent’s contracts with hog producers nor affected by hog

producer reaction to Respondent’s change of the formula to estimate lean


percent.

Seventh, Respondent contends the Chief ALJ erroneously ordered

Respondent to engage in arbitration with producers that Complainant contends

were not paid in full for the difference for hogs purchased using the Purdue

formula as compared to the Danish formula. Specifically, Respondent contends

the Chief ALJ does not have authority to order arbitration and arbitration

provides a non-contractual remedy not bargained for by the parties.


I agree with Respondent’s contention that the Chief ALJ does not have

authority to order Respondent to engage in arbitration with hog producers that

Complainant contends were not paid in full for the difference for hogs

purchased using the Purdue formula as compared to the Danish formula. My

reasons for this conclusion are fully explicated in this Decision and Order,

supra. Accordingly, I do not adopt the portion of the Chief ALJ’s Order that

requires Respondent to engage in arbitration with hog producers.

Respondent’s Response to Complainant’s Appeal

On March 13, 2002, Complainant filed Complainant’s Appeal of Procedural

Rulings, Complainant’s Appeal Petition, and Complainant’s Appeal Brief, and

Respondent filed Respondent’s Appeal Petition. On June 6, 2002, Complainant

filed Complainant’s Response in which Complainant responds to Respondent’s

Appeal Petition. On June 6, 2002, Respondent filed Respondent’s Response to

Complainant’s Appeal in which Respondent raises a number of issues that were

not raised by Complainant in Complainant’s Appeal of Procedural Rulings,

Complainant’s Appeal Petition, or Complainant’s Appeal Brief. Section

1.145(b) of the Rules of Practice provides for a response to an appeal petition,

as follows:

§ 1.145 Appeal to Judicial Officer.

. . . .

(b) Response to appeal petition. Within 20 days after the service of

a copy of an appeal petition and any brief in support thereof, filed by a

party to the proceeding, any other party may file with the Hearing Clerk

a response in support of or in opposition to the appeal and in such

response any relevant issue, not presented in the appeal petition, may

be raised.

7 C.F.R. § 1.145(b) (emphasis added).

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62 Agric. Dec. 196

249

In re Floyd Stanley White, 47 Agric. Dec. 229, 262-63 (1988), aff’d per curiam , 865 F.2d 262,31

1988 W L 133292 (6th Cir. 1988); In re Richard L. Thornton , 41 Agric. Dec. 870, 900 (1982), aff’d,

715 F.2d 1508 (11th Cir. 1983), reprinted in 51 Agric. Dec. 295 (1992).

The emphasized language was included in section 1.145(b) of the Rules of

Practice (7 C.F.R. § 1.145(b)) so that neither party would have to file a

protective notice of appeal (to be dropped if no appeal were filed by the other

party), but could, instead, file the equivalent of a cross-appeal in response to the

appeal petition filed by the other party. Where a party has previously filed an31

appeal petition, that party’s response to the other party’s appeal petition is

limited to a response in support of, or in opposition to, the other party’s appeal.

A party may not, in the guise of a response to another party’s appeal petition,

file a second appeal petition. Therefore, I do not consider the issues

Respondent raises in Respondent’s Response to Complainant’s Appeal which

are not in response to issues raised by Complainant in Complainant’s Appeal

of Procedural Rulings, Complainant’s Appeal Petition, or Complainant’s Appeal

Brief.

Findings of Fact

1. Respondent, Excel Corporation, is a corporation whose mailing address

is P.O. Box 2519, Wichita, Kansas 67201.

2. Respondent is a packer as defined by the Packers and Stockyards Act

and engaged in the business of buying livestock, including hogs, in commerce

for purposes of slaughter and manufacture into meat products.

3. Respondent buys hogs from producers.

4. After hogs are slaughtered, Respondent uses an instrument called the

Fat-O-Meat’er and a formula embedded in the Fat-O-Meat’er to estimate the

lean percent in hog carcasses.

5. The estimated lean percent is used to calculate the price Respondent will

pay hog producers for their hogs.

6. On or about October 1997, Respondent changed the formula for

calculating the lean percent in hogs.

7. The Fat-O-Meat’er and the formula and the change in the formula are all

“grading to be used” within the meaning of section 201.99 of the Regulations

(9 C.F.R. § 201.99).

8. Beginning on or about October 1997, Respondent did not notify hog

producers that it was changing the formula to estimate lean percent prior to

purchasing hogs on a carcass merit basis from those producers.


Conclusion of Law

Respondent, Excel Corporation, violated section 202(a) of the Packers and

Stockyards Act (7 U.S.C. § 192(a)) and section 201.99(a) of the Regulations

(9 C.F.R. § 201.99(a)) when it failed to make known to hog producers that it

was changing the formula to estimate lean percent, prior to purchasing hogs on

a carcass merit basis from those producers.

For the foregoing reasons, the following Order should be issued.

ORDER

Respondent, its agents and employees, directly or indirectly through any

corporate or other device, in connection with its purchases of livestock on a

carcass merit basis, shall cease and desist from:

(a) Failing to make known to sellers, or their duly authorized agents, prior

to purchasing livestock, the factors that affect Respondent’s estimation of lean

percent, including, but not limited to, any change in the formula used to estimate

lean percent; and

(b) Failing to make known to sellers, or their duly authorized agents, prior

to purchasing livestock, the details of the purchase contract, including, when

applicable, the expected date and place of slaughter, carcass price,

condemnation terms, description of the carcass trim, grading to be used,

accounting, and any special conditions.

This Order shall become effective on the day after service of this Order on

Respondent.

__________

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251


P. & S. Docket No. 99-0010.

Stay Order.

Filed February 4, 2003.

P&S – Stay order.

Patrice H. Harps and Eric Paul, for Complainant.

John R. Fleder and Brett T. Schwemer, and Jeff P. DeGraffenreid, for Respondent.

Order issued by William G. Jenson, Judicial Officer.

On January 30, 2003, I issued a Decision and Order concluding Excel

Corporation [hereinafter Respondent] violated the Packers and Stockyards Act,

1921, as amended and supplemented (7 U.S.C. §§ 181-229) [hereinafter the

Packers and Stockyards Act] and section 201.99(a) of the regulations issued

under the Packers and Stockyards Act (9 C.F.R. § 201.99(a)). In re Excel

Corporation, 62 Agric. Dec. ____ (Jan. 30, 2003). On January 31, 2003,

Respondent filed “Excel Corporation’s Motion for Stay of the Agency’s

Decision and Order of January 30, 2003” [hereinafter Motion for Stay].

Respondent states it intends to file a petition for review of In re Excel

Corporation, 62 Agric. Dec. ____ (Jan. 30, 2003), with the United States Court

of Appeal for the Tenth Circuit and requests a stay pending the outcome of

proceedings for judicial review.

Mr. Brett T. Schwemer, counsel for Respondent, telephoned me on

January 31, 2003, and urged me to expedite a ruling on Respondent’s Motion

for Stay to forestall Respondent’s need to seek a stay in the United States Court

of Appeals for the Tenth Circuit. I informed Mr. Schwemer that I would contact

Ms. Patrice H. Harps, counsel for Harold W. Davis, Deputy Administrator,

Packers and Stockyards Programs, Grain Inspection, Packers and Stockyards

Administration, United States Department of Agriculture [hereinafter

Complainant], to determine if Complainant intends to respond to Respondent’s

Motion for Stay and, if so, to order Complainant to expedite the response to

Respondent’s Motion for Stay.

Ms. Harps informed me that Complainant intends to file a petition for

reconsideration of In re Excel Corporation, 62 Agric. Dec. ____ (Jan. 30,

2003). Under the Rules of Practice Governing Formal Adjudicatory

Proceedings Instituted by the Secretary Under Various Statutes (7 C.F.R. §§

1.130-.151), which are applicable to this proceeding, a timely filed petition for

reconsideration automatically stays a decision of the Judicial Officer pending


See 7 C.F.R. § 1.146(b).1

the determination to grant or deny the petition for reconsideration.1

For the foregoing reasons, the following Order should be issued.

ORDER

The Order in In re Excel Corporation, 62 Agric. Dec. ___ (Jan. 30, 2003),

is stayed. This Stay Order is issued nunc pro tunc and is effective January 31,

2003. This Stay Order shall remain effective until one of the parties files a

timely petition for reconsideration, at which time In re Excel Corporation,

62 Agric. Dec. ____ (Jan. 30, 2003), shall be automatically stayed pending the

determination to grant or deny the petition for reconsideration. If neither party

files a timely petition for reconsideration, this Stay Order shall remain effective

until the Judicial Officer lifts the Stay Order or a court of competent jurisdiction

vacates the Stay Order.

______________

SUGARCREEK LIVESTOCK AUCTION, INC., et al.

62 Agric. Dec. 253

253


MISCELLANEOUS ORDERS

In re: SUGARCREEK LIVESTOCK AUCTION, INC. AND LEROY H.

BAKER, JR.

P&S Docket No. D-02-0001.

Supplemental Order.

Filed January 10, 2003.

Christopher Young-M orales, for Complainant.

Ernest H. Van Hooser, for Respondents.

Order issued by James W. Hunt, Administrative Law Judge.

On December 3, 2002, A Decision was entered in this proceeding, whereby

Respondent Sugarcreek Livestock Auction, Inc. and its alter ego, Respondent

Leroy H. Baker, Jr., were suspended as registrants under the Packers and

Stockyards Act (7 U.S.C. § 181 et seq.), hereinafter “the Act” for a period of 14

days and thereafter until they demonstrated that the shortage in the Custodial

Account for Shippers’ Proceeds had been eliminated. Further, Respondent

Sugarcreek Livestock Auction, Inc. and its alter ego, Respondent Leroy H.

Baker, Jr. were jointly and severally assessed a civil penalty of $3800.00. The

suspension began on December 8, 2002, and the civil penalty was to be payed

by or before that date.

The civil penalty of $3,800.00 was paid in full before December 8, 2002,

and on December 13, 2002, Respondent Sugarcreek Livestock Auction, Inc, and

its alter ego, Respondent Leroy H. Baker, Jr. demonstrated by Custodial Audit

Report Analysis as of December 13, 2002 that the shortage in the Custodial

Account for Shippers’ Proceeds had been eliminated.

Complainant requested that a Supplemental Order be issued lifting

Respondents’ suspension as registrants under the Act, effective Monday,

December 23, 2002.

The provisions of this order shall become effective on the first day after

service of this order on the Respondents Sugarcreek Livestock Auction, Inc.,

and Leroy H. Baker, Jr.

Copies of this order shall be served upon the parties.

____________________

254


DEFAULT DECISIONS

In re: FRED HOLMES, d/b/a HOLMES LIVESTOCK.

P&S Docket No. D-02-0022.

Decision and Order.

Filed May 5, 2003.

P& S – Default – Payment, failure to make prompt – Bankruptcy.

Charles Spicknall, for Complainant.

Robert M . Cook, for Respondent.

Decision and Order issued by James Hunt, Administrative Law Judge.

This is a disciplinary proceeding under the Packers and Stockyards Act, 1921,

as amended and supplemented, (7 U.S.C. § 181 et seq.), hereinafter the “Act,”

instituted by a complaint filed by the Deputy Administrator, Packers and

Stockyards Programs, Grain Inspection, Packers and Stockyards Administration

(GIPSA), United States Department of Agriculture alleging that the Respondent

has willfully violated the Act.

Copies of the complaint and the Rules of Practice (7 C.F.R. § 1.130 et seq.)

governing proceedings under the Act were served upon the Respondent, Fred

Holmes, doing business as Fred Holmes Livestock, by certified mail. The

complaint alleged that, as of January 28, 2002, the Respondent had failed to pay

eleven livestock sellers for $505,648.16 in livestock purchases and that

payments on those purchases were more than 325 days overdue in violation of

the Act. See Complaint ¶ II. The complaint also alleged that the Respondent

had violated the Act by issuing checks for a majority of these purchases, which

checks were returned unpaid by the bank upon which they were drawn because

the Respondent did not maintain sufficient funds on deposit and available in the

accounts to pay such checks when presented. See id.

On October 24, 2002, Respondent filed its “Answer to Complaint Filed by

United States Department of Agriculture” generally denying the allegations in

the complaint but admitting that Respondent had filed for bankruptcy under

Chapter 11, Title 11 of the United States Bankruptcy Code, in the United States

District Court, Eastern District of Missouri, Case No. 02-20293. See Answer

¶ III. Respondent’s answer attached a copy of its filing in the bankruptcy

proceeding, including a document entitled “Schedule F – Creditors Holding

Unsecured Priority Claims,” and deemed all further actions against him stayed

pursuant to 11 U.S.C. § 362. See Answer at ¶ III and “Exhibit A.”

Respondent’s Schedule F admits that ten of the eleven livestock sellers in the

FRED HOLM ES, et al.

62 Agric. Dec. 254

255

complaint were unpaid at the time of Respondent’s bankruptcy filing, but claims

that the debts were contingent, unliquidated and disputed. See id. Respondent’s

answer also alleges that any failure to pay livestock creditors was actually

attributable to the misappropriation and misapplication of Respondent’s funds

by the First National Bank of Missouri. See Answer ¶ II.

On April 1, 2003, Complainant filed a “Motion for Decision Without

Hearing.” Based on careful consideration of the pleadings and the precedent

cited by the parties, Complainant’s motion is hereby granted and the following

decision is issued without further proceeding or hearing pursuant to section

1.139 of the Rules of Practice.

Findings of Fact

1. Fred Holmes, doing business as Holmes Livestock, referred to herein as

the “Respondent” is an individual whose business mailing address is P.O. Box

391, Brookfield, Missouri 64658.

2. The Respondent is and, at all times material herein, was:

a. Engaged in the business of a dealer buying and selling livestock in

commerce for his own account and a market agency buying livestock on a

commission basis; and

b. Registered as an individual with the Secretary of Agriculture as a

dealer to buy and sell livestock in commerce and as a market agency to buy

livestock on a commission basis.

3. Respondent filed for bankruptcy under Chapter 11, Title 11 of the United

States Bankruptcy Code, in the United States District Court, Eastern District of

Missouri, Case No. 02-20293. See Answer ¶ III.

4. Respondent has admitted in bankruptcy pleadings, of which the

Secretary may take official notice, that ten of the eleven sellers alleged to be

unpaid in the complaint remained unpaid for more than $500,000 worth of

livestock as of the date of Respondent’s amended bankruptcy filing on June 5,

2002. Schedule F of the bankruptcy filing contains a table with columns for the

name and address of the creditor, along with the amounts of their claims.


The unpaid total for Farmer’s Livestock combines the amounts listed in paragraphs II(a) and1

(b) of the complaint.

George Kimbrough is listed as “GEO KINBROUGH” at page 3 of 7 in Respondent’s Schedule2

F.

The complaint reduces the amount of livestock debt owed by St. Joseph Stockyards alleging3

that eleven head of cattle valued at $5,687.01 were reclaimed by the seller and that $32,078.27 in

sale proceeds were also recovered by the seller. See Complaint at ¶ II, n. 1.

5. The amounts alleged unpaid by the Complainant and admitted unpaid by

the Respondent are as follows:

SELLER SCHEDULE F COM PLAINT

James Brunscher $305.00 $305.00

David Conrad $6,224.16 $6,224.16

Farmers Livestock Sales $63,927.25 $63,927.25 1

Jim Gerdes $32,609.40 $32,609.40

George Kimbrough $746.50 $746.502

Harold Logsdon $37,411.50 $37,411.50

St. Joseph Stockyards $124,436.83 $86,671.553

M arvin Springer $424.25 $424.25

Tecumseh Livestock $89,107.16 $89,107.16

A&W Cattle/Tim Reese $186,780.39 $186,780.39

__________ _________

TOTALS: $541,972.44 $504,207.16

Conclusions

In his answer to the complaint, Respondent Holmes “deems all further

actions against Respondent/Debtor as stayed, pursuant to 11 U.S.C. § 362.”

(Answer ¶ III.) However, disciplinary proceedings under the Packers and

Stockyards Act are exempted from the automatic stay provisions of 362(a) of

the Bankruptcy Code pursuant to 11 U.S.C. § 362(b)(4) and the express


62 Agric. Dec. 254

257

Section 409 requires payment by the next business day, unless different payment terms are4

expressly agreed to in writing prior to the sale. See 7 U.S.C. § 228b(b). If payment for livestock

purchases is mailed, it must be placed in the mail by the next business day. Id. at § 228b(a).

Respondent does not appear to contend that there were prior written agreements extending the time

for payment indefinitely or that payments were lost in the mail.

Official notice is taken of Respondent’s bankruptcy schedules appended to his answer. See5

In re Peter DeVito Company, Inc., 57 Agric. Dec. 830, 834, n. 1 (1997).

exception provided for enforcement proceedings under the Packers and

Stockyards Act in 11 U.S.C. § 525(a). See, e.g., In re: Sechler Foods, Inc., 59

Agric. Dec. 336, 336 (2000); In re Jeremy Byrd, 55 Agric. Dec. 443, 455

(1996); In re Bluegrass Packing Co., 42 Agric. Dec. 1464, 1470 (1983); In re

Pastures, Inc., 39 Agric. Dec. 395, 397 (1980). The express language of

section 525 was intended to remove any doubt that the Secretary of Agriculture

could proceed against registrants under the Packers and Stockyards Act, even

where the proceeding involved debts dischargeable in bankruptcy. See

generally, B.G. Sales Co., 44 Agric. Dec. 2021 (1985) (discussing the

legislative history of the express exemption in Section 525). Accordingly, this

action is not stayed.

Section 409 of the Packers and Stockyards Act generally requires livestock

dealers and market agencies, like the Respondent, to pay for all livestock

purchases by the close of the next business day following the sale. See 7 U.S.C.

§ 228b. Here, the Respondent is bankrupt and admits in his bankruptcy4

pleadings appended to his answer that he has been unable to pay for more than

half a million dollars in livestock purchases for a period of time far in excess of

anything permitted by the Act. Even under the most liberal interpretation of5

the prompt payment requirements of the Packers and Stockyards Act,

Respondent is in violation of sections 409 and 312(a) of the Act.

Respondent’s denials in his answer do not establish the existence of a bona

fide dispute as to the material facts such that a hearing would be necessary. In

particular, Respondent alleges “that any failure to pay was due to the actions by

First National Bank of Missouri.” See Answer at ¶ II(b)). However, even if

Respondent’s failure to pay for his livestock purchases can be attributed to a

misappropriation and misapplication of the Respondent’s funds by the First

National Bank of Missouri, (see Answer ¶ II(c)), it does not excuse the violation

under the Packers and Stockyards Act which was designed to protect farmers

and ranchers from receiving less than fair market value for their livestock by

removing financially unstable and unbonded persons from the chain of

distribution. See, e.g., In re Robert F. Johnson, 47 Agric. Dec. 436, 443 (1988).

As the Department’s Judicial Officer (“JO”) has explained – the damage done


Checking the “unliquidated,” “contingent” and “disputed” boxes on Schedule F of the6

bankruptcy form forces the livestock creditors to file timely proof of their claims with the

bankruptcy court. See Bankr. R. 3003(c). The livestock creditors may lose their creditor status if

they fail to file proof of their claim by the bar date. Id.

In addition to the likely bond payout, the Complainant alleges that at least one livestock seller7

was able to reclaim some of its livestock, along with some of the proceeds from the sale of other

livestock, which will further reduce the debts owed by Respondent.

to livestock producers is the same regardless of the reasons underlying

Respondent’s payment violations. See In re Great American Veal, 48 Agric.

Dec. 183, 211 (1989). The 1976 amendments to the Packers and Stockyards

Act make any delay in payment to livestock sellers an “unfair practice” and a

violation of the Act. See 7 U.S.C. § 228b(c)).

Nor does the fact that Respondent checked the “unliquidated,” “contingent”

and “disputed” boxes for all of the livestock debt listed in his Schedule F filing

affect the quality of the bankruptcy admissions for purposes of this proceeding

under the Packers and Stockyards Act. See Answer at “Exhibit A.” The6

livestock sellers’ claims are not “contingent” because the events giving rise to

liability occurred prior to the filing of the bankruptcy petition. See, e.g., Barcal

v. Laughlin, 213 B.R. 1008, 1012 - 1014 (8th Cir. BAP 1997). Similarly, the

claims are not “unliquidated” because they are simple contract claims

ascertainable by reference to the sales invoice or simple computation. See id.

Perhaps Respondent could argue that his livestock debts are “disputed” in the

bankruptcy proceeding because Respondent’s bond, required under the Packers

and Stockyards Act, will serve to reduce the admitted amounts. However, under

the Packers and Stockyards Act even if Respondent had now fully repaid its

livestock-related debts, “it is well-settled that present compliance is irrelevant

in determining the sanction for past violations.” See, e.g., In re A.W. Schmidt

& Son, Inc., 46 Agric. Dec. 586, 593 (1987) (citations omitted)7

It is the policy of the Department to impose sanctions for violations of any

of the regulatory programs administered by the Department that are serious and

repeated in order to serve as an effective deterrent not only to the Respondent,

but to other potential violators as well. See, e.g., In re Larry Wooten, 58 Agric.

Dec. 944, 980 (1999). Here, the Respondent’s failure-to-pay violations are

serious and repeated. When livestock purchasers, such as the Respondent, do

not make prompt payment it forces the sellers to finance the transaction. See

Van Wyk v. Bergland, 570 F.2d 701, 704 (8th Cir. 1978). Considering

Respondent’s bankruptcy, there is a very real risk that the sellers may never

receive full payment for their livestock. One of the primary purposes of the

Packers and Stockyards Act is “to assure fair trade practices . . . in order to


62 Agric. Dec. 254

259

See also In re S.S. Farms Linn County, Inc., 50 Agric. Dec. 476, 497 (1991) (“appropriate8

weight” is to be given to the sanction recommendations of administrative officials charged with the

responsibility for achieving the congressional purpose); In re Marysville Enterprises, Inc., 59 Agric.

Dec. 299, 318 (2000) (same). See also 7 U.S.C. § 204 (permitting the Secretary to suspend a

registrant “for a reasonable specified period”).

safeguard farmers and ranchers against receiving less than the fair market value

of their livestock.” Bruhn’s Freezer Meats v. United States Dep’t of Agric., 438

F.2d 1332, 1337 (8th Cir. 1971). A producer’s “livestock may represent his

entire year’s output. And, if he is not paid, he faces ruin.” In re Great

American Veal, 48 Agric. Dec. 183, 203 (1989) (quoting H. Rep. No. 94-1043,

94th Cong., 2nd Sess., p.5).

The agency’s recommendation that the Respondent be ordered to cease and

desist from violating the Act and suspended as a registrant under the Act for

five years is consistent with the sanctions regularly imposed in other cases

involving failure to pay for livestock. See, e.g., In re Hines and Thurn Feedlot,

Inc., 57 Agric. Dec. 1408, 1429 (1998). Respondent’s alleged victimization8

by the First National Bank of Missouri is not relevant in determining sanctions

for Respondent’s violation. See id. at 1430 (citing Van Wyk, 570 F.2d at 704).

The sanctions are necessary to deter future violations and to prevent the

Respondent from continuing to deal in livestock while he is bankrupt and

unable to pay for his purchases. See In re Larry Wooten, 58 Agric. Dec. at 977

(the sanction is intended to obtain compliance and deter the Respondent and

other registrants from committing unfair and deceptive trade practices similar

to those which occurred in this case).

Order

Respondent Fred Holmes, his agents and employees, directly or through any

corporate or other device, in connection with his activities subject to the Packers

and Stockyards Act, shall cease and desist from:

1. Issuing checks in payment for livestock purchases without maintaining

sufficient funds on deposit and available in the account on which the checks are

drawn to pay the checks when presented;

2. Failing to pay, when due, the full purchase price of livestock; and

3. Failing to pay the full purchase price of livestock.

The Respondent is hereby suspended as a registrant under the Act for a

period of five (5) years. Provided, however, that upon application to Packers

and Stockyards Programs, a supplemental order may be issued terminating the

suspension of the Respondent at any time after one (1) year upon demonstration


by the Respondent that he is in full compliance with the Act; and provided

further, that this order may be modified upon application to Packers and

Stockyards Programs to permit the Respondent’s salaried employment by

another registrant or a packer after the expiration of one (1) year of suspension

upon demonstration of circumstances warranting modification of the order, such

as a reasonable schedule of restitution.

The provisions of this order shall become effective on the sixth (6th) day

after service of this order on the Respondent.

Copies of this decision shall be served upon the parties.

[This Decision and Order became final May 14, 2003.–Editor]

____________________

261

CONSENT DECISIONS

(Not published herein - Editor)

GRAIN STANDARDS ACT

Buffalo Farm Supply, Inc. G.S.A. Docket No. 03-0001. 5/23/2003.


Jacob Dressler, III, a/k/a Jake Dressler, III, d/b/a Clover Lane Farm. P&S

Docket No. D-03-0003. 4/3/2003.

Kirk Hemmert, d/b/a Wakeeney Livestock Commission Co. P&S Docket No.

D-03-0002. 4/8/2003.

Dewey B. Vaughn, d/b/a Vaughn Cattle Service. P&S Docket No. D-03-0006.

4/17/2003.

Michael Claude Edwards. P&S Docket No. D-03-0005. 5/29/2003.

Josephine E. Bonaccurso, Inc., d/b/a Salem Packing Co., and Anthony

Bonaccurso. P&S Docket No. D-02-0015. 6/24/2003.

Chris Britten d/b/a Chris Britten Cattle. P&S Docket No. D-03-0010.

6/25/2003.

____________________

Documents

AGRICULTURE DECISIONS - OALJ 62 Book...1. 13 0-. 15 1) [ herei naft er the R ul es of Pract ice]. O n A pri l 21, 1999 , C om pl ai nant O n A pri l 21, 1999 , C om pl ai nant filed